AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1996
REGISTRATION NO. 333-14117
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
HOPS GRILL & BAR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
FLORIDA 5812 59-3407079
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3030 NORTH ROCKY POINT DRIVE WEST, SUITE 650, TAMPA, FLORIDA 33607
(813) 282-9350 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------
DAVID L. MASON, CHIEF EXECUTIVE OFFICER
HOPS GRILL & BAR, INC.
3030 NORTH ROCKY POINT DRIVE WEST, SUITE 650
TAMPA, FLORIDA 33607
(813) 282-9350
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------
COPIES OF ALL COMMUNICATIONS, INCLUDING COPIES
OF ALL COMMUNICATIONS SENT TO AGENT FOR
SERVICE, SHOULD BE SENT TO:
R. Alan Higbee, Esq. Gary M. Epstein, Esq.
David M. Doney, Esq. Andrew Hulsh, Esq.
Fowler, White, Gillen, Boggs, Greenberg, Traurig, Hoffman,
Villareal and Banker, P.A. Lipoff, Rosen & Quentel, P.A.
501 East Kennedy Boulevard, Suite 1700 1221 Brickell Avenue
Tampa, Florida 33602 Miami, Florida 33131
Telephone: (813) 228-7411 Telephone: (305) 579-0500
Facsimile: (813) 228-9401 Facsimile: (305) 579-0717
------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [X]
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CALCULATION OF REGISTRATION FEE
=============================================================================================================
Proposed Maximum
TITLE OF EACH CLASS OF Aggregate Amount of
SECURITIES TO BE REGISTERED Offering Price(1) Registration Fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.01 per share....................... $19,800,000 $6,000 (2)
=============================================================================================================
<FN>
- -----------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
</FN>
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<PAGE>
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<CAPTION>
HOPS GRILL & BAR, INC.
CROSS REFERENCE BETWEEN ITEMS IN PART I
OF FORM S-1 AND THE PROSPECTUS
FORM S-1 ITEM AND CAPTION PROSPECTUS CAPTION
------------------------- ------------------
<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................................... Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.............................................. Inside Front and Outside
Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges..................................... Prospectus Summary; Risk
Factors
4. Use of Proceeds...................................................... Use of Proceeds
5. Determination of Offering Price...................................... Outside Front Cover Page of
Prospectus; Underwriting
6. Dilution............................................................. Dilution; Risk Factors
7. Selling Security Holders............................................. *
8. Plan of Distribution................................................. Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Registered........................... Outside Front Cover Page of
Prospectus; Prospectus
Summary; Dividend Policy;
Description of Securities
10. Interests of Named Experts and Counsel............................... *
11. Information with Respect to the Registrant........................... Outside Front Cover Page of
Prospectus; Prospectus
Summary; The Company;
Reorganization and Prior S
Corporation Status; Risk
Factors; Use of Proceeds;
Dilution; Capitalization;
Dividend Policy; Selected
Financial Data;
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Transactions; Principal
Shareholders; Description of
Securities; Independent
Auditors Report and Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities................... *
</TABLE>
- --------
* Omitted because answer is negative or not applicable
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of such State.
SUBJECT TO COMPLETION, DATED DECEMBER 5, 1996
PROSPECTUS
SHARES
HOPS GRILL & BAR, INC.
COMMON STOCK
[LOGO] ----------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING
ISSUED AND SOLD BY HOPS GRILL & BAR, INC. (THE "COMPANY"). THE COMPANY HAS MADE
AN APPLICATION TO INCLUDE THE COMMON STOCK FOR QUOTATION ON THE NASDAQ NATIONAL
MARKET UNDER THE TRADING SYMBOL "HOPS." PRIOR TO THIS OFFERING, THERE HAS BEEN
NO PUBLIC MARKET FOR THE COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE
INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $
. SEE "UNDERWRITING" FOR FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.
----------
SEE "RISK FACTORS" ON PAGES 5 THROUGH 10 OF THIS PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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=============================================================================================================================
Underwriting
PRICE TO Discounts and Proceeds to
PUBLIC Commissions(1) Company(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
Total(3)........................................ $ $ $
=============================================================================================================================
<FN>
- ----------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses estimated at $400,000, which are payable by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock to cover over-allotments, if any. If
the option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $
and $ respectively. See "Underwriting."
</FN>
</TABLE>
----------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS,
SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THEM, AND
SUBJECT TO CERTAIN OTHER CONDITIONS INCLUDING THE RIGHT OF THE UNDERWRITERS TO
WITHDRAW, CANCEL, MODIFY OR REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED
THAT DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1996, AT
THE OFFICES OF RAYMOND JAMES & ASSOCIATES, INC., ST. PETERSBURG, FLORIDA.
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1996
<PAGE>
[INSIDE FRONT COVER]
[The text and photographs described below appear on
a background consisting of a brick wall.]
[The text "Wait'll You See What's [A photograph of a frozen mug of beer,
Brewing On The Grill.(TM)" and the a plate with a steak and a baked
registered service mark "Hops Grill & potato, and a plate of salad appears
Bar Microbrewery(R)" and Design here.]
appears here.]
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by an independent accounting
firm and to make available to its shareholders quarterly reports for the first
three quarters of each year containing unaudited financial information.
----------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
[INSIDE FRONT FOLD-OUT]
[A photograph of the interior of the [A photograph of the exterior of a
HOPS GRILL & BAR restaurant in Boynton HOPS GRILL & BAR restaurant located
Beach, Florida appears here.] in Tampa, Florida appears here.]
[A photograph of three beers in frozen mugs, hops,
and barley surrounded by a colorful ribbon, together
with the text "Tap Into The Taste of Hops." appears
here.]
[A photograph of the exterior of the HOPS GRILL & BAR restaurant in Denver,
Colorado appears here.] [A photograph of the on-premises microbrewery equipment
at a HOPS GRILL & BAR restaurant located in Tampa, Florida appears here.]
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED
ELSEWHERE IN THIS PROSPECTUS. ALL INFORMATION CONCERNING THE COMPANY HAS BEEN
ADJUSTED TO REFLECT AND ASSUMES THE CONSUMMATION OF THE REORGANIZATION DESCRIBED
UNDER "REORGANIZATION AND PRIOR S CORPORATION STATUS." AFTER GIVING EFFECT TO
THE REORGANIZATION, THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY WILL BE
THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HEREIN. THE PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN DERIVED FROM THE AUDITED HISTORICAL
FINANCIAL STATEMENTS OF HOPS GRILL & BAR, INC. AND THE AUDITED HISTORICAL
FINANCIAL STATEMENTS OF THE PREDECESSOR CORPORATIONS INCLUDED ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED (I) ALL FINANCIAL DATA IN THIS PROSPECTUS
IS BASED UPON THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND (II) THE
INFORMATION IN THIS PROSPECTUS GIVES NO EFFECT TO THE EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
The Company's HOPS GRILL & BAR restaurant system of 18 full-service,
casual dining restaurants constitutes the nation's largest chain of restaurants
that feature an on-premises microbrewery and operate under one name. Each
restaurant features a diverse menu of popular foods, freshly prepared in a
display kitchen with a strict commitment to quality. The Company seeks to
heighten its customers' sense of value by offering generous portions at moderate
prices. As a complement to its menu, each HOPS GRILL & BAR restaurant offers
handcrafted lager-style beers and ales that are brewed in-house and selected for
their mass appeal and drinkability. To enhance the dining experience of its
customers, each restaurant provides attentive, friendly service in a casual,
upbeat atmosphere. The Company believes that its emphasis on consistent,
high-quality food and outstanding service, together with its signature
microbrewed beers, enable the Company to differentiate itself from its
competitors and provide its customers with an exceptional dining experience.
HOPS GRILL & BAR restaurants feature an American-style menu that
includes top choice steaks and prime rib, smoked baby back ribs, fresh fish,
chicken and pasta dishes, deluxe burgers and sandwiches, hand-tossed salads
with homemade dressings, appetizers, soups, and desserts. Menu items are
prepared from scratch daily in a display kitchen. The Company's restaurants
serve both lunch and dinner, with prices ranging from $5.45 to $6.45 for
appetizers, $3.95 to $6.95 for salads, $5.95 to $7.95 for burgers and
sandwiches, and $8.45 to $16.95 for dinner entrees. The menu also offers
separate selections for children. Management believes that the cost of a typical
meal at the Company's restaurants, including beverages, currently ranges from
$6.00 to $9.00 per person for lunch and $13.00 to $15.00 per person for dinner.
Average annual sales for the 13 HOPS GRILL & BAR restaurants that were open for
the entire 12-month period ended September 30, 1996, were approximately $2.5
million.
The Company utilizes its own original recipes to brew its distinctive
lager-style beers and ales - Clearwater Light(TM), Lightning Bold Gold(TM),
Hammerhead Red(TM), and A-1 Ale. An observation microbrewery at each restaurant
allows customers to view the entire brewing process. The freshly brewed beers
are served in a frozen glass mug and, except for one nonalcoholic beer, are the
only beers served at HOPS GRILL & BAR restaurants. Full liquor and bar service
is also available at each restaurant. Sales of alcoholic beverages accounted for
17.8% of the Company's total sales (with beer constituting 58.0% of sales of
alcoholic beverages) during the 12-month period ended September 30, 1996.
The Company opened the first HOPS GRILL & BAR restaurant in Clearwater,
Florida in 1989, and all but two HOPS GRILL & BAR restaurants are located in
Florida. Fourteen HOPS GRILL & BAR restaurants are owned and operated by the
Company, and four HOPS GRILL & BAR restaurants are owned by development joint
ventures which are controlled by the Company. The Company opened five HOPS GRILL
& BAR restaurants in 1996 and plans to open nine and 12 HOPS GRILL & BAR
restaurants in 1997 and 1998, respectively.
A key element of the Company's restaurant development strategy is its
operating partner program. Under this program, each operating partner acquires a
ten percent equity interest in the restaurants developed within a specified
geographic area. Each of the Company's operating partners is an experienced
restaurant operator who can provide local market knowledge and management. Six
of the current Company-owned restaurants and all of the current development
joint venture restaurants have an operating partner. The Company believes the
operating partner program provides incentive to its operating partners to
actively manage and develop restaurants and will enhance its ability to open new
restaurants.
2
<PAGE>
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<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered by the Company................................ shares
Common Stock to be Outstanding after the Offering(1)............... shares
Use of Proceeds.................................................... To repay existing indebtedness. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol............................. HOPS
Risk Factors....................................................... Investors should carefully consider the factors
discussed under "Risk Factors."
</TABLE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL AND RESTAURANT DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- -----------------
1991(2) 1992 1993 1994 1995 1995(2) 1996(2)
-------- ------- ------- -------- ------- -------- -------
STATEMENT OF EARNINGS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.......................................... $ 3,699 $ 6,733 $12,120 $ 20,189 $28,314 $ 20,262 $31,358
Restaurant operating expenses:
Cost of sales.............................. 1,228 2,114 3,822 6,600 9,070 6,453 10,312
Labor and other related expenses........... 1,143 2,033 3,404 5,792 8,147 5,808 8,975
Other restaurant operating expenses........ 862 1,612 2,762 4,569 6,811 4,547 6,351
Depreciation and amortization.............. 145 173 286 800 1,242 852 1,559
-------- ------- ------- -------- ------- -------- -------
Total restaurant operating expenses..... 3,378 5,932 10,274 17,761 25,270 17,660 27,197
Income from restaurant operations.............. 321 801 1,846 2,428 3,044 2,602 4,161
General and administrative expenses............ 168 337 634 1,544 2,036 1,562 1,285
-------- ------- ------- -------- ------- -------- -------
Operating income............................... 153 464 1,212 884 1,008 1,040 2,876
Interest expense, net.......................... (101) (99) (158) (506) (939) (671) (993)
Net income before taxes........................ 30 392 1,072 301 1 404 1,616
Net income..................................... $ 19 $ 243 $ 665 $ 187 $ 1 $ 250 $ 1,002
======== ======= ======= ======== ======= ======== =======
Net income per share........................... $ 0.01 $ 0.11 $ 0.30 $ 0.08 $ 0.00 $ 0.11 $ 0.45
======== ======= ======= ======== ======= ======== =======
Supplemental net income per share(3)........... $ $
======= =======
RESTAURANT DATA:
Restaurants open at end of period:
Company-owned restaurants.................. 2 4 6 7 10 9 14
Development joint venture restaurants...... - - - 2 3 3 4
-------- ------- ------- -------- ------- -------- -------
Total.................................. 2 4 6 9 13 12 18
======== ======= ======= ======== ======= ======== =======
System-wide sales:
Company-owned restaurants.................. $ 3,699 $ 6,733 $12,120 $ 17,160 $22,600 $ 16,052 $26,079
Development joint venture restaurants...... - - - 3,029 5,714 4,210 5,279
-------- ------- ------- -------- ------- -------- -------
Total.................................. $ 3,699 $ 6,733 $12,120 $ 20,189 $28,314 $ 20,262 $31,358
======== ======= ======= ======== ======= ======== =======
SEPTEMBER 30, 1996
---------------------------
PRO FORMA
PRO FORMA AS ADJUSTED(4)
--------- ----------------
BALANCE SHEET DATA:
Working capital (deficit).......................................................... $ (4,312) $
Total assets....................................................................... 26,663
Long-term debt, excluding current portion.......................................... 15,618
Shareholders' equity............................................................... 2,778
<FN>
- ----------
(1) Does not include 375,000 shares reserved for issuance under the Company's
1996 Stock Incentive Plan, including 240,000 shares issuable upon the
exercise of outstanding options. See "Management-Stock Incentive Plan."
(2) Derived from the unaudited historical financial statements of the
Predecessor Corporations.
(3) Gives effect to (i) the issuance of all of the shares of common stock
offered hereby, as though they were outstanding since the beginning of the
period, and assumes that (a)the proceeds of of such shares are
utilized to fund the distribution of restricted funds in excess of
earnings (assuming a distribution of $ ) and (b)the proceeds of
of such shares are utilized to repay $ of the Company's
indebtedness, and (ii)the elimination of the interest costs associated
with such repaid indebtness, net of income taxes. See "Reorganization and
Prior S Corporation Status" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital
Resources."
(4) Adjusted to reflect the sale of shares of Common Stock offered by the
Company hereby (at an assumed initial public offering price of $ per
share) and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
</FN>
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3
<PAGE>
THE COMPANY
Hops Grill & Bar, Inc. was incorporated in the State of Florida on October
1, 1996. Unless the context requires otherwise, references in this Prospectus to
the Company refer to Hops Grill & Bar, Inc. and its subsidiaries and, with
respect to operations prior to the Reorganization, the Predecessor Corporations.
See "Reorganization and Prior S Corporation Status" and "Certain Transactions."
The address of the Company's principal executive office is 3030 North Rocky
Point Drive West, Suite 650, Tampa, Florida 33607. The Company's telephone
number is (813) 282-9350.
REORGANIZATION AND PRIOR S CORPORATION STATUS
Hops Grill & Bar, Inc. was incorporated on October 1, 1996 to act as a
holding company for 24 corporations (the "Predecessor Corporations") which owned
or operated various aspects of the HOPS GRILL & BAR restaurant system. Pursuant
to the terms of a Share Exchange Agreement dated October 7, 1996 (the "Exchange
Agreement"), the Company and each of the shareholders of the Predecessor
Corporations agreed that immediately prior to the closing of this offering (the
"Exchange Date"), the Company will exchange its Common Stock for all of the
outstanding common stock of each of the Predecessor Corporations (such
transactions are referred to herein collectively as the "Reorganization") and
all of the Predecessor Corporations will become direct wholly owned subsidiaries
of the Company. Under the terms of the Exchange Agreement, each of the
shareholders of the Predecessor Corporations will receive, in consideration for
the exchange of the outstanding capital stock of the Predecessor Corporations,
shares of the Company's Common Stock, such that immediately following the
Reorganization but prior to the completion of this offering, the shareholders of
the Predecessor Corporations will own all of the Common Stock of the Company.
Since their inception, each of the Predecessor Corporations has been
treated as an S corporation for federal and state income tax purposes. As a
result, the earnings of the Predecessor Corporations have been taxed, for
federal and state income tax purposes, directly to the shareholders of the
Predecessor Corporations. Upon the completion of the Reorganization, the Company
will become responsible for the payment of federal and state income taxes on its
earnings.
The Predecessor Corporations paid cash dividends to their shareholders in
the aggregate amounts of $365,000, $844,000, $1,424,000, and $2,191,000
representing funds available for distribution, including funds necessary to pay
federal and state income tax obligations, during the years ended December 31,
1993, 1994 and 1995, and during the nine months ended September 30, 1996,
respectively. Immediately prior to the Reorganization and in contemplation of
the terms of the New Facility, the Predecessor Corporations will distribute to
their shareholders funds which were previously restricted under the Predecessor
Corporations' prior lending arrangement (approximately $0.7 million as of
September 30, 1996). Such restricted funds would have been previously
distributed by the Predecessor Corporations in accordance with their past
practice, but for the restrictions contained in the prior lending arrangement.
4
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS IN EVALUATING
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
LIMITED OPERATING HISTORY
The first HOPS GRILL & BAR restaurant opened in 1989. Of the 18 current
HOPS GRILL & BAR restaurants, only 12 have been open for more than a full year.
Accordingly, the Company has a limited operating history upon which investors
may evaluate its performance. Although the Company is currently profitable,
there can be no assurance that the Company will continue to operate profitably.
SMALL RESTAURANT BASE
The operating results achieved to date by the Company's relatively small
restaurant base may not be indicative of the future operating results of a
larger number of restaurants. Because of the Company's small restaurant base, an
unsuccessful new restaurant or poor results at one or a small number of
restaurants could have a greater adverse effect on the Company's results of
operations than would be the case in a larger restaurant chain.
GEOGRAPHIC CONCENTRATION
All but two of the 18 existing HOPS GRILL & BAR restaurants are located in
the state of Florida. During 1996, the Company opened one restaurant in Bowling
Green, Kentucky and one restaurant in Denver, Colorado. The Company expects that
six of the next eight HOPS GRILL & BAR restaurants will be located in Florida
and two will be located outside Florida. Accordingly, the Company is susceptible
to fluctuations in its business caused by adverse economic, weather, or other
conditions in Florida. As a result of the Company's present geographic
concentration, adverse publicity relating to a HOPS GRILL & BAR restaurant in
Florida could have a more pronounced adverse effect on the Company's overall
sales than might be the case if the Company's restaurants were more broadly
dispersed. As a part of its growth strategy, the Company will open restaurants
in the same market in order to achieve media and other efficiencies. The opening
of restaurants in relatively close proximity to one another may have the effect
of reducing sales in existing restaurants. Additionally, the Company has only
limited experience in operating restaurants that are geographically dispersed,
and there can be no assurance that the Company will be able to operate
restaurants located outside of Florida profitably. See "Business-Restaurant
Locations."
GROWTH STRATEGY
The Company has experienced steady growth in the past five years and
intends to accelerate the opening of new restaurants following this offering.
The Company opened five HOPS GRILL & BAR restaurants in 1996 and plans to open
nine and 12 HOPS GRILL & BAR restaurants in 1997 and 1998, respectively. The
Company's ability to expand will depend upon a number of factors, including
identification of suitable locations, negotiation of favorable lease or site
acquisition terms, the availability, training and retention of skilled
management and restaurant personnel, securing required governmental approvals,
licenses, and permits, adequately supervising construction and managing
development costs, securing adequate financing and other factors, some of which
are beyond the control of the Company. In addition, the Company's ability to
develop restaurants in certain states may be adversely affected by local laws
regulating brewers or restaurants with on-premise breweries. See "-Government
Regulation." There can be no assurance that the Company will be able to develop
all of its planned new restaurants or that, if developed, such new restaurants
will operate profitably. See "Business-Expansion Strategy."
5
<PAGE>
LEVERAGE
The Company has financed its expansion and operations to date principally
through debt financing and operating cash flows. All of the proceeds of this
offering will be utilized to repay a substantial portion of the Company's
existing indebtedness and, upon completion of this offering, the Company will
enter into a new $20.0 million credit facility (the "New Facility") with its
existing lender. The Company will draw approximately $ million from the
New Facility to repay its remaining existing indebtedness. The Company intends
to utilize substantially all of the remaining funds available under the New
Facility to finance its new restaurant development during 1997. Payments of
principal and interest will have to be made with respect to such borrowings
regardless of the Company's operating results. The credit agreement relating to
the New Facility will contain customary representations, warranties and
covenants, as well as prohibitions against the incurrence of other indebtedness
without the consent of the lender, except for normal trade credit and
liabilities and minor equipment leases, and a prohibition of the payment of
dividends. The Company's obligations under the New Facility will be secured by a
pledge of all of the outstanding capital stock of the Company's subsidiaries and
will be guaranteed by David L. Mason, Chairman of the Board, Chief Executive
Officer and President of the Company, and Thomas A. Schelldorf, Chief Operating
Officer and Executive Vice President of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
NEED FOR ADDITIONAL FINANCING
The development of new restaurants requires funds for the purchase of real
estate, construction, tenant improvements, furniture, fixtures, equipment,
training of employees, permits, and other expenditures. See "Business-Unit
Economics." The Company expects that funds available under the New Facility and
cash flow from operations will be sufficient to achieve the Company's expansion
objectives through 1997. Thereafter, the Company will require additional
financing, possibly through the issuance of additional equity or debt
securities, or additional borrowings, to achieve its expansion objectives,
including the Company's planned restaurant development in 1998, as well as to
pay amounts due under the New Facility, which matures in 1998. There can be no
assurance that such financing will be available or will be available on
satisfactory terms. If additional financing is not obtained by the Company when
needed, the Company's expansion plan may be severely limited. Future equity
financings could result in dilution to shareholders. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
DEPENDENCE ON SENIOR MANAGEMENT
The success of the Company's business will continue to be highly dependent
upon the services of Messrs. Mason and Schelldorf. The Company has not entered
into an employment agreement with Mr. Mason or Mr. Schelldorf. The loss of the
services of either Mr. Mason or Mr. Schelldorf could have a material adverse
effect upon the Company's business and development. The Company is currently the
beneficiary of life insurance policies in the amount of $2.0 million on the life
of each of Messrs. Mason and Schelldorf, respectively. As the Company expands
its operations, the success of its business will increasingly depend on the
Company's ability to attract and retain skilled management personnel. The loss
of the services of any of the executive officers or other key employees or the
Company's inability to attract or maintain the necessary personnel could have a
material adverse effect on the Company's business, prospects, financial
condition or results of operations. See "Management" and "Business-Restaurant
Operations."
6
<PAGE>
CHANGES IN FOOD COSTS
The Company's profitability depends in large measure on its ability to
anticipate and react to changes in food costs. Various factors beyond the
Company's control, including adverse weather conditions, natural disasters, and
local, regional, or national matters related to food purity and safety may
increase food costs. While management for the most part has been able to
anticipate and react to changing food costs to date, there can be no assurance
that it will be able to do so in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
JOINT VENTURE INTERESTS
The Company is currently a party to three development joint ventures for
the development of HOPS GRILL & BAR restaurants. Accordingly, the Company is
subject to risks relating to its relationship with its partners and development
joint ventures. Any significant deterioration of such relationships could
jeopardize the ultimate success of the operation of the existing HOPS GRILL &
BAR restaurants developed by the ventures, as well as the development of
additional restaurants by such ventures. Although the Company presently believes
that it has good relations with its development joint venture partners, there
can be no assurance that such relations will continue, that such parties will
not seek to terminate their relationship with the Company or alter the terms of
such ventures. See "Business-Ownership Structures."
GOVERNMENT REGULATION
ALCOHOLIC BEVERAGE REGULATION. Sales of alcoholic beverages accounted for
17.8% of the Company's total sales (with beer constituting 58.0% of sales of
alcoholic beverages) during the 12-month period ended September 30, 1996. The
Company is required to operate in compliance with federal licensing requirements
imposed by the Bureau of Alcohol, Tobacco and Firearms of the United States
Department of Treasury, as well as the licensing requirements of states and
municipalities in which its restaurants are located. Failure to comply with
federal, state, or local regulations could cause the Company's licenses to be
revoked or suspended for cause at any time. Any difficulties, delays, or
failures in obtaining such required licenses, permits, or approvals could delay
or prevent the opening of a restaurant in a particular area. In addition,
changes in legislation, regulations, or administrative interpretation of liquor
laws after the opening of restaurants in a jurisdiction may prevent or hinder
the Company's expansion or operations in that jurisdiction. Management believes
the Company is operating in substantial compliance with applicable laws and
regulations governing its operations. Certain states issue liquor licenses under
a quota or other system that limits their availability and may cause the cost of
obtaining a liquor license to be very high. Additionally, the Company may be
subject in certain states (including Florida) to "dram-shop" statutes, which
generally provide a person who is injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic beverages
to the intoxicated person.
BREWPUB REGULATION. Historically, the alcoholic beverage laws of most
states prohibited the manufacture and retail sale of beer to consumers by a
single person or entity or related persons or entities. At present, 48 states
allow for the limited manufacture and retail sale of microbrewed beer by
restaurants and bars classified as "brewpubs" under state law. As the result of
the on-premises microbrewery in each HOPS GRILL & BAR restaurant, the Company's
restaurants are required to comply with such state "brewpub" laws in order to
obtain necessary state licenses and permits. Laws in Mississippi and Montana
prohibit the operation of brewpubs. Additionally, many states impose
restrictions on the operations of brewpubs, such as a prohibition on the
bottling of beer, a prohibition on the sale of beer for consumption outside of
the restaurant premises, and a limitation on the volume of beer that may be
brewed at any location, as well as certain geographic limitations. In addition,
certain states limit the number of brewpubs that may be owned by any person or
entity or a related group of entities. The Company's ability to own and operate
HOPS GRILL & BAR restaurants in any state is and will continue to be dependent
upon its ability to operate within the regulatory scheme of such state.
Restrictions currently imposed by two of the states (Kansas and Michigan) that
allow for
7
<PAGE>
the operation of brewpubs may make it impractical for the Company to operate
HOPS GRILL & BAR restaurants in such states under the Company's present system
of operation. Additionally, there can be no assurance that states that currently
permit the operation of brewpubs will not change their laws or regulations in a
manner that would prohibit brewpub operation or otherwise adversely affect the
operations of the Company.
OTHER REGULATION. The restaurant industry is subject to numerous federal,
state, and local government regulations, including those relating to the
preparation and sale of food and to building and zoning requirements. Delays or
failures in obtaining the required construction and operating licenses, permits
or approvals could delay or prevent the opening of new restaurants. The Company
is subject to regulation by air and water pollution control divisions of the
environmental protection agencies of the United States and by the various states
and municipalities in which its restaurants are or will be located. The Company
is also subject to laws governing its relationship with employees, including
minimum wage requirements, overtime, working and safety conditions, and
citizenship requirements. Restaurant operating costs are affected by increases
in the minimum wage, unemployment tax rates, sales taxes, and similar matters,
such as any government mandated health insurance, over which the Company has no
control. In August 1996, the President of the United States signed into law a
bill increasing the minimum hourly wage effective October 1, 1996. However, the
law contains provisions that, among other things, maintains the cash wage for
tipped employees at the current rate. Management believes the Company is in
substantial compliance with applicable laws and regulations governing its
operations. See "Business-Government Regulation."
CERTAIN FACTORS AFFECTING THE RESTAURANT BUSINESS
The ownership and operation of restaurants may be affected by adverse
changes in national, regional, or local economic or market conditions; increased
costs of labor (including those which may result from any increases in
applicable minimum wage requirements); increased costs of food products;
management problems; increases in the number and density of competitors; limited
alternative uses for properties and equipment; changing consumer tastes, habits,
and spending priorities; the cost and availability of insurance coverage;
uninsured losses; changing demographics; changes in government regulation;
changing traffic patterns; weather conditions; local, regional, or national
health and safety matters; and other factors. The Company may be the subject of
litigation based on discrimination, personal injury, or other claims, including
claims which may be based upon legislation that imposes liability on restaurants
or their employees for injuries or damages caused by the negligent service of
alcoholic beverages to an intoxicated person or to a minor. A multi-unit
restaurant operator such as the Company can be adversely affected by publicity
resulting from food quality, illness, injury, or other health concerns or
operating issues resulting from one restaurant or a limited number of
restaurants operated under the same name. None of these factors can be predicted
with any degree of certainty, and any one or more of these factors could have a
material adverse effect on the Company.
COMPETITION
Competition in the restaurant industry is intense with respect to price,
service, location and type and quality of food and beverage served. Many of the
Company's competitors are well established and have substantially greater
resources than the Company. HOPS GRILL & BAR restaurants compete with other
mid-priced, full service, casual dining restaurants primarily on the basis of
food and beverage quality, atmosphere, service, location and value. Other
companies operate with restaurant concepts that target the same casual dining
customers as the Company, and the Company is aware of other restaurants that
operate with concepts similar to the Company's. There can be no assurance that
the Company will continue to compete effectively against present and future
competitors or that competitive pressures will not have an adverse effect on the
Company's business, prospects, financial condition or results of operations. See
"Business-Competition."
8
<PAGE>
TAXES; SMALL BREWERS EXCISE TAX CREDIT
The United States federal government currently imposes an excise tax of
$18 per barrel of beer brewed for domestic consumption in the United States.
However, each brewer with production under 2,000,000 barrels per year is granted
a small brewer's excise tax credit in the amount of $11 per barrel on its first
60,000 barrels brewed annually. In 1995, the Company took advantage of
approximately a $60,000 credit pursuant to this exemption, but no assurance can
be given that the federal government will not reduce or eliminate the credit.
Individual states and municipalities also impose excise or other taxes or
special charges on alcoholic beverages in varying amounts, which amounts are
subject to change. For example, the state of Florida imposes an excise tax on
all restaurant liquor sales. It is possible that in the future the rate of
excise taxation could be increased by either state or federal governments, or
both. Future increases in excise taxes on alcoholic beverages, if enacted, could
adversely affect the Company.
DEPENDENCE UPON SINGLE SUPPLIER
To date the Company has purchased all of the microbrewery equipment for
its restaurants from a single supplier. Although the Company believes that its
relationship with this supplier is good and that alternate sources of
microbrewery equipment are available, any delay in obtaining or lack of
availability of microbrewery equipment from the Company's current supplier for
any reason could have a material adverse effect upon the Company's ability to
develop and open new restaurants in accordance with its development schedule.
See "Business-Expansion Strategy."
CONTROL BY PRINCIPAL SHAREHOLDERS; FACTORS INHIBITING TAKEOVER
Upon the completion of this offering, David L. Mason and Thomas A.
Schelldorf will beneficially own, in the aggregate, approximately % of
the outstanding Common Stock ( % if the Underwriters' over-allotment
is exercised in full). As a result, Messrs. Mason and Schelldorf will be able to
elect all of the Company's directors and determine the outcome of substantially
all other matters requiring shareholder approval. The voting power of Messrs.
Mason and Schelldorf, together with a staggered Board of Directors and the
anti-takeover effects of certain provisions contained in both the Florida
Business Corporation Act and in the Company's Articles of Incorporation and
Bylaws (including, without limitation, the ability of the Board of Directors of
the Company to issue shares of Preferred Stock and to fix the rights and
preferences thereof), may have the effect of delaying, deferring or preventing
an unsolicited change in the control of the Company, which may adversely affect
the market price of the Common Stock or the ability of shareholders to
participate in a transaction in which they might otherwise receive a premium for
their shares. See "Management" and "Description of Securities-Certain Statutory
and Other Provisions."
DILUTION
The purchasers of the Common Stock offered hereby will experience
immediate and significant dilution of approximately $ per share. This is
the amount by which the purchase price of the Common Stock offered hereby will
exceed the net tangible book value of the Common Stock immediately following
this offering. See "Dilution."
ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock and there can be no assurance that an active public market for the
Common Stock will develop or, if developed, that it will be sustained after this
offering. The public offering price has been determined through negotiations
between the Company and the Representative of the Underwriters and may not
9
<PAGE>
be indicative of prices that will prevail in the open market. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price.
PRICE VOLATILITY
The market price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results, news
announcements, matters affecting the restaurant industry in general, and other
factors. In addition, the securities markets have experienced significant price
and volume fluctuations in recent years that have often been unrelated or
disproportionate to the operating performance of particular companies. These
broad fluctuations may adversely affect the market price of the Common Stock.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
The Company's sales and earnings fluctuate seasonally. In addition,
quarterly results have been, and in the future are likely to be, substantially
affected by the timing of new restaurant openings. Because of the seasonality of
the Company's business and the impact of new restaurant openings, results for
any quarter are not necessarily indicative of the results that may be achieved
for a full fiscal year and cannot be used to indicate financial performance for
the entire year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Seasonality and Quarterly Results."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have
shares of Common Stock outstanding ( shares
if the Underwriters' over-allotment option is exercised in full). Of these
shares, the shares of Common Stock sold in this offering (
shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable by persons other than affiliates of the Company,
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 2,250,000 shares of Common Stock will be
"restricted securities" within the meaning of Rule 144 under the Securities Act,
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including the exemptions
contained in Rule 144. Commencing two years after the date of the
Reorganization, these 2,250,000 shares of Common Stock will become eligible for
sale in the open market, subject to volume and other limitations imposed by Rule
144. Sales of all or a portion of such shares could have a material adverse
effect upon the price of the Common Stock. See "Shares Eligible for Future
Sale."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), including statements regarding, among
other items, (i) the Company's expansion strategy and (ii) anticipated trends in
the restaurant industry. These forward-looking statements are based largely on
the Company's expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of the
factors described in "Risk Factors," including, among others, general economic
conditions, governmental regulation, and competitive factors. In light of these
risks and uncertainties, there can be no assurance that the results anticipated
by the forward-looking information contained in this Prospectus will in fact
transpire.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the
shares of Common Stock offered hereby (at an assumed initial public offering
price of $ per share) are estimated to be approximately $
million ($ million if the Underwriters' over-allotment is exercised in
full) after deduction of estimated offering expenses payable by the Company and
underwriting discounts and commissions. The Company plans to use all of these
proceeds to repay a substantial portion of the Company's existing bank
indebtedness. The indebtedness to be repaid out of these proceeds bears interest
at rates ranging from approximately 8.75% to 9.50% per annum and matures at
various dates ranging from December 1996 to May 2011. This indebtedness consists
primarily of construction loans and other debt owed to the Company's primary
bank lender incurred in connection with the opening of new restaurants.
The Company has received a commitment from its primary bank lender to
provide the Company with a $20.0 million line of credit facility, effective upon
the completion of this offering. The New Facility will bear interest at the
prime rate (as determined by reference to the prime rates published in the WALL
STREET JOURNAL) or, at the Company's option, at LIBOR plus 2.5%, and will mature
two years from the closing of the loan. Approximately $ million of the
New Facility will be utilized to repay the balance of the existing indebtedness
with the Company's primary bank lender, and the balance of approximately $
million will be available to develop new restaurants and for working
capital and other general corporate purposes. The Company intends to utilize the
New Facility primarily to finance the development of new restaurants. See "Risk
Factors-Leverage," "Risk Factors-Growth Strategy," and "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources."
The Company plans to open nine and 12 HOPS GRILL & BAR restaurants in 1997
and 1998, respectively. Although the funds available under the New Facility, the
Company's cash flow from operations, and contributions from development joint
venture partners are expected to be sufficient to fund the Company's restaurant
development through 1997, the Company will need additional financing in order to
carry out its expansion plans in 1998 and thereafter, as well as to pay amounts
due under the New Facility, which matures in 1998. Such additional financing,
when required, may involve the sale of additional debt or equity securities by
the Company, additional bank financing, leases on some of its new restaurants,
additional mortgage loans secured by restaurants, or the development of
restaurants under development joint venture or other contractual relationships.
See "Risk Factors-Growth Strategy," "Risk Factors-Need for Additional
Financing," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
11
<PAGE>
DILUTION
At September 30, 1996, the net tangible book value of the Company's Common
Stock was $2,498,000, or $1.11 per share. Net tangible book value per share
represents the amount of total assets less total liabilities and intangible
assets, divided by the number of shares of Common Stock assumed to be
outstanding at such date. Net tangible book value dilution per share represents
the difference between the amount per share paid by purchasers of shares of
Common Stock in this offering and the net tangible book value per share of
Common Stock immediately after completion of this offering. After giving effect
to the sale of shares of Common Stock by the Company in this
offering at an assumed initial public offering price of $ per share and
the application of the estimated net proceeds therefrom, the adjusted net
tangible book value of the Company as of September 30, 1996, would have been $
, or $ per share. This represents an immediate
increase in net tangible book value of $ per share for existing
shareholders and an immediate dilution in net tangible book value of $
per share to purchasers of Common Stock in the offering, as
illustrated in the following table:
Assumed initial public offering price per share.......... $
Net tangible book value per share before offering..... $ 1.11
Increase per share attributable to new investors...... ------
Net tangible book value per share after offering......... -----
Dilution per share to new investors...................... $
=====
<TABLE>
<CAPTION>
The following table sets forth as of September 30, 1996 (assuming the sale
of shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $ per share), the number of
outstanding shares of Common Stock purchased from the Company by existing
shareholders, the total consideration paid, and the average price per share.
Corresponding information is set forth with respect to the shares to be sold in
this offering.
SHARES PURCHASED CONSIDERATION AVERAGE
------------------- ---------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)................ 2,250,000 % $ 3,673,000(2) % $ 1.63
New investors........................... % % $
--------- ------ -------------- -------
Total................................ 100.0% $ 100.0%
========= ====== ============== =======
<FN>
- -------------
(1) Does not include 375,000 shares reserved for issuance under the Company's
1996 Stock Incentive Plan, including 240,000 shares issuable upon the
exercise of outstanding options. See "Management-Stock Incentive Plan."
(2) Does not reflect a planned distribution to the shareholders of the
Predecessor Corporations immediately prior to the Reorganization. See
"Reorganization and Prior S Corporation Status."
</FN>
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
capitalization of the Company as of September 30, 1996, and as adjusted to give
effect to the sale by the Company of the shares offered hereby (at an
assumed initial public offering price of $ per share) after deduction of
estimated offering expenses and underwriting discounts and commissions and the
application of the net proceeds therefrom. See "Use of Proceeds." This table
should be read in conjunction with the financial statements and related notes
included elsewhere in this Prospectus.
SEPTEMBER 30, 1996
--------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt............................ $ 2,550 $
========== ==========
Long-term debt, excluding current portion.................... $ 15,618 $
---------- ----------
Shareholders' equity:
Preferred stock, $0.01 par value;
1,000,000 shares authorized; no
shares issued or outstanding
actual or as adjusted.................................. --
Common stock, $0.01 par value; 25,000,000
shares authorized; 2,250,000 shares issued
and outstanding; shares issued
and outstanding as adjusted............................ 23
Additional paid-in capital............................... 2,955
Retained earnings (deficit).............................. (200)
--------- -----------
Total shareholders' equity........................... 2,778
---------- -----------
Total capitalization......................................... $ 18,396 $
========== ===========
</TABLE>
13
<PAGE>
DIVIDEND POLICY
Following this offering, the Company intends to retain any earnings for
use in the operation and expansion of its business and therefore does not
anticipate declaring any cash dividends in the foreseeable future, other than
the distributions described below. The payment of dividends, if any, in the
future will be at the discretion of the Board of Directors of the Company and
will depend upon, among other things, future earnings, capital requirements,
restrictions in any future financing agreements, the general financial condition
of the Company and general business conditions. The New Facility will prohibit
the payment of cash dividends without the prior consent of the lender.
The Predecessor Corporations paid cash dividends to their shareholders
in the aggregate amounts of $365,000, $844,000, $1,424,000, and $2,191,000
representing funds available for distribution, including funds necessary to pay
federal and state income tax obligations during the years ended December 31,
1993, 1994 and 1995, and during the nine months ended September 30, 1996,
respectively. Immediately prior to the Reorganization and in contemplation of
the terms of the New Facility, the Predecessor Corporations will distribute to
their shareholders funds which were previously restricted under the Predecessor
Corporations' prior lending arrangement (approximately $0.7 million as of
September 30, 1996). Such restricted funds would have been previously
distributed by the Predecessor Corporations in accordance with their past
practice, but for the restrictions contained in the prior lending arrangement.
See "Reorganization and Prior S Corporation Status," "Certain
Transactions-Reorganization," and "Certain Transactions-Earnings Distributions."
14
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth certain selected financial data on a pro
forma basis for, and as of the end of, each of the years in the five-year period
ended December 31, 1995, and each of the nine-month periods ended September 30,
1995 and 1996. Unless otherwise indicated, the selected financial data have been
derived from the pro forma consolidated financial statements of Hops Grill &
Bar, Inc., which have been derived from the audited historical financial
statements of Hops Grill & Bar, Inc. and the audited historical financial
statements of the Predecessor Corporations included elsewhere in this
Prospectus. The pro forma consolidated financial statements as of September 30,
1995 and 1996 have been derived from the unaudited financial statements of the
Predecessor Corporations and reflect, in the opinion of management, all
adjustments necessary for a fair presentation thereof. The results of operations
for the nine months ended September 30, 1996, are not necessarily indicative of
the results of operations to be expected for the entire year. This table should
be read in conjunction with the financial statements and related notes included
elsewhere in this Prospectus.
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1991(1) 1992(2) 1993 1994 1995 1995(1) 1996(1)
------ ------ ---- ---- ---- ------ ------
STATEMENT OF EARNINGS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales......................................... $ 3,699 $ 6,733 $12,120 $ 20,189 $28,314 $ 20,262 $31,358
Restaurant operating expenses:
Cost of sales............................. 1,228 2,114 3,822 6,600 9,070 6,453 10,312
Labor and other related expenses.......... 1,143 2,033 3,404 5,792 8,147 5,808 8,975
Other restaurant operating expenses....... 862 1,612 2,762 4,569 6,811 4,547 6,351
Depreciation and amortization............. 145 173 286 800 1,242 852 1,559
-------- ------- ------- -------- ------- -------- -------
Total restaurant operating expenses.... 3,378 5,932 10,274 17,761 25,270 17,660 27,197
Income from restaurant operations............. 321 801 1,846 2,428 3,044 2,602 4,161
General and administrative expenses........... 168 337 634 1,544 2,036 1,562 1,285
-------- ------- ------- -------- ------- -------- -------
Operating income.............................. 153 464 1,212 884 1,008 1,040 2,876
Interest expense, net......................... (101) (99) (158) (506) (939) (671) (993)
Other income (loss)........................... (22) 27 18 (71) (25) 70 (140)
-------- ------- ------- -------- ------- -------- -------
Net income before taxes and elimination
of minority partners' interest............ 30 392 1,072 307 44 439 1,743
Elimination of minority partners' interest.... - - - 6 43 35 127
-------- ------- ------- -------- ------- -------- -------
Net income before taxes....................... 30 392 1,072 301 1 404 1,616
Net income.................................... $ 19 $ 243 $ 665 $ 187 $ 1 $ 250 $ 1,002
======== ======= ======= ======== ======= ======== =======
Net income per share.......................... $ 0.01 $ 0.11 $ 0.30 $ 0.08 $ 0.00 $ 0.11 $ 0.45
======== ======= ======= ======== ======= ======== =======
Supplemental net income per share(3).......... $ $
======= =
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)..................... $ (166) $ 32 $ 130 $ (634) $(1,344) $(1,579) $(4,312)
Total assets.................................. 1,454 3,420 7,286 13,241 21,746 20,314 26,663
Long-term debt, excluding current portion..... 968 2,149 4,524 7,969 11,737 10,926 15,618
Shareholders' equity.......................... (32) 245 973 2,516 4,110 3,298 2,778
<FN>
- ----------
(1) Derived from the unaudited historical financial statements of the
Predecessor Corporations.
(2) Balance sheet data derived from the unaudited historical financial
statements of the Predecessor Corporations.
(3) Gives effect to (i)the issuance of all of the shares of common stock
offered hereby, as though they were outstanding since the beginning of the
period, and assumes that (a)the proceeds of of such shares are utilized
to fund the distribution of restricted funds in excess of earnings (assuming
a distribution of $ )and (b)the proceeds of of such shares are
utilized to repay $ of the Company's indebtedness, and (ii)the
elimination of the interest costs associated with such repaid indebtedness,
net of income taxes. See "Reorganization and Prior S Corporation Status" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
</FN>
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The financial data for each for the years ended December 31, 1993,
1994, and 1995, have been derived from the pro forma consolidated financial
statements of Hops Grill & Bar, Inc., which have been derived from the audited
historical financial statements of Hops Grill & Bar, Inc. and the audited
historical financial statements of the Predecessor Corporations included
elsewhere in this Prospectus. The financial data for the nine months ended
September 30, 1995 and 1996, have been derived from the unaudited historical
financial statements of the Predecessor Corporations.
The following discussion of the results of operations and financial
condition should be read in conjunction with the financial statements and notes
appearing elsewhere in this Prospectus. See "Risk Factors-Forward-Looking
Statements and Associated Risk."
As of September 30, 1996, the Company had an ownership interest in 18
HOPS GRILL & BAR restaurants. The Company's ownership interest in each of the
restaurants is in one of two categories for financial accounting purposes. See
"Business-Ownership Structures."
COMPANY-OWNED RESTAURANTS. As of September 30, 1996, the
Company owned 14 HOPS GRILL & BAR restaurants. Eight of these
restaurants are wholly owned by the Company, and the Company owns
approximately 90% and an operating partner owns approximately ten
percent of the other six restaurants. The results of operations of the
restaurants in which an operating partner owns an interest are
consolidated in the operating results of the Company, and the portion
attributable to the operating partner is eliminated as minority
partners' interest.
DEVELOPMENT JOINT VENTURE RESTAURANTS. As of September 30,
1996, four HOPS GRILL & BAR restaurants were owned by development joint
ventures controlled by the Company. The Company owns approximately 46%,
a development joint venture partner owns approximately 44%, and an
operating partner owns approximately 10% of three HOPS GRILL & BAR
restaurants operated by a development joint venture in one market. The
Company owns approximately 51%, a development joint venture partner
owns approximately 39%, and an operating partner owns approximately 10%
of one HOPS GRILL & BAR restaurant operated by another development
joint venture. The results of operations of these restaurants are
consolidated in the operating results of the Company, and the portion
attributable to the development joint venture partner and operating
partner is eliminated as minority partners' interest.
Of the nine restaurants to be opened in 1997, the Company currently
anticipates that three will be opened by the Company and six will be opened
through development joint ventures. It is anticipated that operating partners
will own approximately 10% of these nine restaurants.
The Company has financed its expansion and operations to date
principally through debt financing and operating cash flows. The Company plans
to use all of the proceeds of this offering and to draw approximately $
million under the New Facility to repay the Company's existing bank
indebtedness. Additionally, the Company intends to utilize substantially all of
the remaining funds available under the New Facility to finance its new
restaurant development during 1997. As a result, the Company expects to have
significant indebtedness and incur substantial interest expense in the future.
See "Risk Factors-Leverage" and "Use of Proceeds."
During 1994 and 1995, the Company experienced a decrease in operating
income and net income before taxes as a percentage of sales. The decrease in
operating income was the result of an increase in certain restaurant operating
and general and administrative expenses. The Company's net income before taxes
was also adversely affected by an increase in interest expense. The Company
believes that the increased level of expenses was necessary to allow the Company
to position itself for the acceleration of its growth. The Company's results for
the first nine months of 1996 reflect a
16
<PAGE>
benefit from these prior expenditures. The Company believes that as it develops
new restaurants and generates increased sales, the Company will continue to
benefit from such expenditures.
The Company's income from restaurant operations increased in 1994,
1995, and for the nine months ended September 30, 1996 to $2.4 million, $3.0
million, and $4.2 million, respectively. As a percentage of sales, income from
restaurant operations was 12.1%, 10.8%, and 13.3% in 1994, 1995, and for the
nine months ended September 30, 1996, respectively. The fluctuation in income
from restaurant operations as a percentage of sales is primarily attributable to
an increase in advertising expenses as a percentage of sales in 1995 and a
decrease in advertising as a percentage of sales in 1996. The Company decided in
the fourth quarter of 1995 to further expose its concept to the public via its
first television advertising campaign, which was conducted in all but one of the
Company's then-current markets. The campaign cost the Company approximately
$400,000 (including approximately $100,000 in production costs). The Company
believes that it will receive efficiencies in advertising expenditures as new
restaurants open and markets develop, and the Company anticipates utilizing
television in the fourth quarter of 1996 as well as the future in markets that
are media-efficient for the Company. Although income from restaurant operations
increased in 1994 and 1995, net income before taxes decreased to $301,000 and
$1,000, respectively. This is primarily the result of higher interest expense
associated with the financing of new restaurants and higher general and
administrative expenses. In 1994, the Company incurred certain general and
administrative expenses in connection with the development of its corporate
infrastructure. The Company moved its administrative support personnel from its
restaurants to 4,000 square feet of office space located in Tampa, Florida.
Along with the expenses associated with the move and rent expense, the Company
also incurred costs associated with recruiting, moving, and hiring of additional
administrative personnel as well as costs associated with supplies and
materials. As the Hops Grill & Bar restaurant system expanded during 1994, the
Company developed and began to utilize the operating partner program as a key
element in its expansion strategy. In 1995, the Company incurred approximately
$250,000 in general and administrative expenses associated with the recruitment
of operating partners and start-up of the operating partner program. The Company
does not anticipate incurring such additional expenses in the future. In 1995,
the Company also incurred additional costs due to the hiring of additional
corporate personnel and restaurant supervisory personnel to support its
expansion program.
Preopening costs include labor costs, costs of hiring and training
personnel, and certain other costs related to opening new restaurants, and are
capitalized and amortized over a 12-month period, beginning in the month the
restaurant opens.
Immediately prior to the Reorganization and in contemplation of the
terms of the New Facility, the Predecessor Corporations will distribute to their
shareholders funds which were previously restricted under the Predecessor
Corporations' prior lending arrangement (approximately $0.7 million as of
September 30, 1996). Such restricted funds would have been previously
distributed by the Predecessor Corporations in accordance with their past
practice, but for the restrictions contained in the prior lending arrangement.
As a result of the termination of the Predecessor Corporation's S corporation
status upon the closing of this offering, the Company's operating results will
reflect the recognition of a deferred tax liability of approximately $200,000
which will be included as income tax expense in the fourth quarter of 1996. In
addition, the Company's New Facility requires a $250,000 fee which will be
expensed in the quarter in which the New Facility becomes effective.
Since their inception, each of the Predecessor Corporations has been
treated as an S corporation for federal and state income tax purposes. As a
result, the earnings of the Predecessor Corporations have been taxed, for
federal and state income tax purposes, directly to the shareholders of the
Predecessor Corporations. Accordingly, the following discussion of the Company's
results of operations does not include a discussion of income tax expense. Upon
the completion of the Reorganization, the Company will become responsible for
the payment of federal and state income taxes on its earnings.
17
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, (i) the
percentages which items in the Company's Statement of Earnings bear to total
sales, as indicated, and (ii) selected restaurant data. All dollar amounts in
the following table are expressed in thousands.
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
STATEMENT OF EARNINGS DATA:
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
Restaurant operating expenses:
Cost of sales 31.5 32.7 32.0 31.9 32.9
Labor and other related expenses 28.1 28.7 28.8 28.7 28.6
Other restaurant operating expenses 22.8 22.6 24.0 22.4 20.2
Depreciation and amortization 2.4 3.9 4.4 4.2 5.0
--------- --------- --------- --------- ---------
Total restaurant operating expenses 84.8 87.9 89.2 87.2 86.7
--------- --------- --------- --------- ---------
Income from restaurant operations 15.2 12.1 10.8 12.8 13.3
General and administrative expenses 5.2 7.7 7.2 7.7 4.1
--------- --------- --------- --------- ---------
Operating income 10.0 4.4 3.6 5.1 9.2
Interest expense, net (1.3) (2.5) (3.3) (3.3) (3.2)
Other income (loss) 0.1 (0.4) (0.1) 0.4 (0.4)
--------- --------- --------- --------- ---------
Net income before taxes and elimination
of minority partners' interest 8.8 1.5 0.2 2.2 5.6
Elimination of minority partners' interest -- -- 0.2 0.2 0.4
--------- --------- --------- --------- ---------
Net income before taxes 8.8% 1.5% 0.0% 2.0% 5.2%
========= ========= ========= ========= =========
RESTAURANT DATA:
Restaurants open at end of period:
Company-owned restaurants 6 7 10 9 14
Development joint venture restaurants -- 2 3 3 4
--------- --------- --------- --------- ---------
Total 6 9 13 12 18
========= ========= ========= ========= =========
System-wide sales:
Company-owned restaurants $ 12,120 $ 17,160 $ 22,600 $ 16,052 $ 26,079
Development joint venture restaurants -- 3,029 5,714 4,210 5,279
--------- --------- --------- --------- ---------
Total $ 12,120 $ 20,189 $ 28,314 $ 20,262 $ 31,358
========= ========= ========= ========= =========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
SALES. Sales increased $11.1 million or 54.8% to $31.4 million for the
nine months ended September 30, 1996, from $20.3 million for the same period in
1995. Approximately $6.3 million of this increase was attributable to the five
new restaurants opened during the first nine months of 1996, while approximately
$3.9 million of the increase was attributable to a full nine months of
operations for the four restaurants opened during 1995. The increase was also a
result of a $0.9 million increase in sales by the nine restaurants opened for
the first nine months of both 1996 and 1995. This increase is primarily
attributable to an increase in customer counts as well as an increase in the
average check amount. In June 1995, the Company reformatted its menu to focus on
higher dollar entrees at dinner as well as adding the Brewmaster Steak to its
menu permanently. Both the reformatting of the menu and the addition of the
Brewmaster Steak had the effect of increasing average check amounts.
COST OF SALES. Cost of sales, which consists of food and beverage
costs, increased $3.9 million or 59.8% to $10.3 million for the nine months
ended September 30, 1996, from $6.5 million for the same period in 1995 and
increased as a percentage of sales to 32.9% for the nine months ended September
30, 1996, from 31.9% for the same period in 1995. The increase in the cost of
sales as a percentage of sales was primarily due to increased meat sales as a
result of the reformatting of the menu and higher food costs associated with new
restaurant openings during the nine months ended September 30, 1996.
18
<PAGE>
LABOR AND OTHER RELATED EXPENSES. Labor and other related expenses,
which include restaurant wages, payroll taxes, and group health insurance,
increased $3.2 million or 54.5% to $9.0 million for the nine months ended
September 30, 1996, from $5.8 million for the same period in 1995. Labor and
other related expenses increased due to new restaurant openings but decreased as
a percentage of sales to 28.6% for the nine months ended September 30, 1996,
from 28.7% for the same period in 1995. The Company does not expect the
legislated increase in the minimum wage, effective October 1, 1996, to have a
material effect on its operating results.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating
expenses, which include operating supplies, repairs and maintenance, utilities,
advertising expenses, and occupancy costs, increased $1.8 million or 40.0% to
$6.4 million for the nine months ended September 30, 1996, from $4.5 million for
the same period in 1995. As a percentage of sales, such expenses decreased to
20.2% from 22.4% primarily due to greater efficiencies created by an increase in
average sales per restaurant as well as an increased focus on cost controls.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$0.7 million or 83.0% to $1.6 million for the nine months ended September 30,
1996, from $0.9 million for the same period in 1995 principally reflecting the
amortization of capitalized preopening costs and depreciation expenses related
to new restaurant openings.
INCOME FROM RESTAURANT OPERATIONS. As a result of the increase in
sales, the changes in the relationship between sales and expenses discussed
above, and the opening of new restaurants, income from restaurant operations
increased $1.6 million or 60.0% to $4.2 million for the nine months ended
September 30, 1996, from $2.6 million for the same period in 1995. As a
percentage of sales, income from restaurant operations increased to 13.3% for
the nine months ended September 30, 1996, from 12.8% for the same period in
1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased $0.3 million or 17.7% to $1.3 million for the nine months
ended September 30, 1996, compared to $1.6 million for the same period in 1995
and decreased as a percentage of sales to 4.1% for the nine months ended
September 30, 1996, compared to 7.7% for the same period in 1995. During 1995,
the Company hired additional restaurant supervisory personnel and corporate
personnel to support additional restaurants. The Company also incurred higher
expenses in 1995 as the result of start-up costs associated with the
commencement of its operating partner program. Although general and
administrative expenses decreased substantially both in amount and as a
percentage of sales during the nine months ended September 30, 1996, the Company
believes that the these expenses, both in amount and as a percentage of sales,
will increase after this offering due to the addition of corporate personnel to
support growth and from an increase in salaries for existing management. See
"Business-Executive Compensation."
INTEREST EXPENSE, NET. Interest expense, net, which consists of
interest expense net of interest income, increased $0.3 million to $1.0 million
during the nine months ended September 30, 1996, from $0.7 million during the
same period in 1995 reflecting borrowings for the development of new restaurants
offset in part by a decrease in the cost of borrowings.
OTHER INCOME (LOSS). Other income (loss) includes any gains or losses
associated with investment in marketable securities and any gains or losses
associated with the disposal of fixed assets. Other income (loss) decreased
$210,000 to a loss of $140,000 during the nine months ended September 30, 1996,
from income of $70,000 for the same period in 1995. This decrease was primarily
due to a loss in marketable securities of $48,000 during the nine months ended
September 30, 1996, compared to a gain of $70,000 for the same period in 1995,
as well as a loss on the disposal of fixed assets of $92,000 during the first
half of 1996 in connection with an upgrade of the Company's point of sale
system. The Company intends to divest itself of all marketable securities prior
to the completion of this offering and does not to plan to invest in marketable
securities in the future.
NET INCOME BEFORE TAXES. As a result of the foregoing factors, net
income before taxes increased $1.2 million or 300.0% to $1.6 million during the
nine months ended September 30, 1996,
19
<PAGE>
from $0.4 million for the same period in 1995. As a percentage of sales, net
income before taxes increased to 5.2% for the nine months ended September 30,
1996, from 2.0% for the same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
SALES. Sales increased $8.1 million or 40.2% to $28.3 million in 1995
from $20.2 million in 1994. Approximately $6.4 million of this increase was
attributable to the four new restaurants opened in 1995 while approximately $1.9
million of the increase was attributable to a full year of operations for the
three restaurants opened during 1994. The increases were partially offset by a
$0.2 million aggregate decrease in sales at the six restaurants that were open
for both periods.
COST OF SALES. Cost of sales increased $2.5 million or 37.4% to $9.1
million in 1995 from $6.6 million in 1994, but decreased as a percentage of
sales to 32.0% in 1995 from 32.7% in 1994. The overall increase in cost of sales
was due to new restaurant openings in 1995 while the decrease in cost of sales
as a percentage of sales was due to a 0.2% decrease in food costs primarily
attributable to improved food costs in restaurants open prior to 1995 and by a
0.5% decrease in liquor costs mostly related to a beer promotion in 1994 which
reduced margins.
LABOR AND OTHER RELATED EXPENSES. Labor and other related expenses
increased $2.3 million or 40.7% to $8.1 million in 1995 from $5.8 million in
1994. This increase is primarily attributable to new restaurant openings. Labor
and other related expenses as a percentage of sales remained essentially
unchanged.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating
expenses, which include operating supplies, repairs and maintenance, utilities,
advertising expenses, and insurance and occupancy costs, increased 49.3% or $2.2
million to $6.8 million in 1995 from $4.6 million in 1994. As a percentage of
sales, such expenses increased to 24.1% from 22.6% primarily due to increased
advertising expenses associated with the Company's first television campaign in
the fourth quarter of 1995 and increased insurance costs associated with
entering new markets.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$0.4 million or 55.3% to $1.2 million in 1995 from $0.8 million in 1994,
principally reflecting the amortization of capitalized preopening costs and
depreciation expenses related to new restaurant openings in 1995.
INCOME FROM RESTAURANT OPERATIONS. As a result of the increase in
sales, the changes in the relationship between sales and expenses discussed
above, and the opening of new restaurants, income from restaurant operations
increased $0.6 million or 25.4% to $3.0 million in 1995 from $2.4 million in
1994. As a percentage of sales, income from restaurant operations decreased to
10.8% in 1995 from 12.1% for 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $0.5 million or 31.9% to $2.0 million in 1995 from $1.5
million in 1994 but decreased as a percentage of sales to 7.2% in 1995 from 7.7%
in 1994. The overall increase in general and administrative expenses was the
result of an increase in restaurant supervisory personnel and corporate
personnel to support additional restaurants and certain costs incurred by the
Company in the initiation of its operating partner program, and the decrease in
general and administrative expenses as a percentage of sales was due to higher
sales without a proportionate increase in such expenses.
INTEREST EXPENSE, NET. Interest expense, net, increased $0.4 million to
$0.9 million from $0.5 million reflecting borrowings for the development of new
restaurants as well as an increase in the cost of borrowings.
OTHER INCOME (LOSS). Other income (loss) includes any gains or losses
associated with investment in marketable securities and any gains or losses
associated with the disposal of fixed assets. The Company incurred a loss of
$25,000 in 1995 compared to a loss of $71,000 in 1994. This
20
<PAGE>
decrease in the amount of loss was primarily due to a gain in marketable
securities of $36,000 in 1995 compared to a loss of $71,000 in 1994, offset in
part by a loss on the disposal of fixed assets of $61,000 in connection with an
upgrade of the Company's computer system.
NET INCOME BEFORE TAXES. As a result of the foregoing factors, net
income before taxes decreased $0.3 million or 99.9% to $1,000 during 1995, from
$0.3 million for 1994. As a percentage of sales, net income before taxes
decreased to less than one percent for 1995 from 1.5% for 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
SALES. Sales increased $8.1 million or 66.6% to $20.2 million in 1994
from $12.1 million in 1993. Approximately $4.5 million of this increase was
attributable to the three new restaurants opened in 1994 while approximately
$4.0 million of the increase was attributable to a full year of operations for
the two restaurants opened in 1993. The increases were partially offset by a
$0.4 million aggregate decrease in sales at the four restaurants that were open
for both periods.
COST OF SALES. Cost of sales increased $2.8 million or 72.7% to $6.6
million in 1994 from $3.8 million in 1993 and increased as a percentage of sales
to 32.7% in 1994 from 31.5% in 1993. The overall increase in cost of sales was
due to new restaurant openings. The increase as a percentage of sales was
primarily attributable to an increase in the food sales mix to 81.4% of total
sales in 1994 compared to 79.3% in 1993.
LABOR AND OTHER RELATED EXPENSES. Labor and other related expenses
increased $2.4 million or 70.2% to $5.8 million in 1994 from $3.4 million in
1993. Labor and other related expenses increased as a percentage of sales to
28.7% in 1994 from 28.1% in 1993. The increase is primarily attributable to
higher labor costs as a percentage of sales for the three new restaurants opened
in 1994 and to the opening of the two new restaurants in the fourth quarter of
1993.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating
expenses increased $1.8 million or 65.4% to $4.6 million in 1994 from $2.8
million in 1993. This increase is due to the opening of the three new
restaurants in 1994. Such expenses as a percentage of sales decreased to 22.6%
in 1994 from 22.8% in 1993.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$0.5 million or 179.7% to $0.8 million in 1994 from $0.3 million in 1993,
principally reflecting the amortization of capitalized preopening costs and
depreciation expenses related to new restaurant openings in 1994.
INCOME FROM RESTAURANT OPERATIONS. As a result of the increase in
sales, the changes in the relationship between sales and expenses discussed
above, and the opening of new restaurants, income from restaurant operations
increased $0.6 million or 31.5% to $2.4 million in 1994 from $1.8 million in
1993. As a percentage of sales, income from restaurant operations decreased to
12.1% for 1994 from 15.2% for 1993.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $0.9 million or 143.5% to $1.5 million in 1994 from $0.6
million in 1993 and increased as a percentage of sales to 7.7% in 1994 from 5.2%
in 1993. The increase is primarily the result of the Company's development of
its corporate infrastructure. During 1994, the Company moved its administrative
support personnel from its restaurants to 4,000 square feet of new office space
located in Tampa, Florida. Along with the expenses associated with the move to a
corporate office and the related rent expense, the Company also incurred costs
associated with recruiting and hiring of administrative personnel as well as
costs associated with supplies and materials.
INTEREST EXPENSE, NET. Interest expense, net, which consists of
interest expense net of interest income, increased $0.3 million to $0.5 million
from $0.2 million reflecting borrowings for the development of new restaurants
offset by a decrease in the cost of borrowings.
21
<PAGE>
OTHER INCOME (LOSS). Other income (loss) decreased $89,000 to a loss of
$71,000 in 1994 from a gain of $18,000 in 1993. This decrease was primarily due
to a loss in marketable securities.
NET INCOME BEFORE TAXES. As a result of the foregoing factors, net
income before taxes decreased $0.8 million or 71.9% to $0.3 million during 1994,
from $1.0 million for 1993. As a percentage of sales, net income before taxes
decreased to 1.5% for 1994 from 8.8% for 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the development and
construction of new restaurants. Total capital expenditures were approximately
$3.2 million, $6.8 million, $8.4 million, and $6.7 million for the years ended
December 31, 1993, 1994, and 1995, and for the nine months ended September 30,
1996, respectively. As of September 30, 1996, the Company leased 12 restaurant
properties and owned six restaurant properties. To date, the Company has
financed its capital requirements through cash flow from operations, bank
borrowings, and capital contributions from shareholders and minority partners.
The following table presents a summary of the Company's sources of capital for
the last three fiscal years and for the nine months ended September 30, 1996.
All dollar amounts in the following table are expressed in thousands.
<TABLE>
<CAPTION>
NINE
MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPT. 30,
---------------------------------- ---------
1993 1994 1995 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Cash provided by operations........................ $ 1,597 $ 1,395 $ 1,435 $ 1,974
Borrowings, net of repayments...................... 2,575 4,207 3,863 5,739
Contributions from shareholders.................... 21 2,086 3,017 138
Contributions from minority partners............... - 48 1,961 481
--------- --------- ---------- ---------
$ 4,193 $ 7,736 $ 10,276 $ 8,332
========= ========= ========== =========
</TABLE>
The borrowings have been under term loans ranging from one to 15 years
at 0.50% to 1.25% above the lender's prime rate. See Note 3 of Notes to Combined
Financial Statements.
The Company plans to open nine new restaurants in 1997. The Company
estimates that the cost of developing each additional restaurant in 1997 will
average approximately $1.4 million, including building, site improvement costs,
restaurant fixtures and equipment, and approximately $150,000 in microbrewery
equipment. Of the nine new restaurants in 1997, the Company expects to purchase
four restaurant properties for an average of approximately $750,000 per property
and to lease the remaining five restaurant properties. Preopening costs during
1997 are expected to average approximately $140,000 per restaurant. The Company
estimates that its portion of capital expenditures (including land costs but
excluding development joint venture partner contributions) for the development
of new restaurants in 1997 will be approximately $15.6 million. See
"Business-Unit Economics." The Company also intends to make capital expenditures
on an ongoing basis to maintain and, where appropriate, upgrade its existing
restaurants.
The Company has received a commitment from its primary bank lender to
provide the Company with a $20.0 million line of credit facility, effective upon
the completion of this offering. The New Facility will bear interest at the
prime rate (as determined by reference to the prime rates published in the WALL
STREET JOURNAL) or, at the Company's option, at LIBOR plus 2.5%, and will mature
two years from the closing of the loan. Approximately $ million of the
New Facility will be utilized to repay the balance of the existing indebtedness
with the Company's primary bank lender, and the balance of $ million will
be available to develop new restaurants and for working capital and other
general corporate purposes. The Company expects that the credit agreement
relating to the New Facility will contain customary representations, warranties
and covenants, as well as prohibitions against any other indebtedness without
the consent of the lender, except for normal trade credit and liabilities and
minor equipment leases, and a prohibition of the payment of dividends by Hops
Grill & Bar, Inc. There will be no restriction on the operating subsidiaries'
ability to pass cash flow from
22
<PAGE>
their operations up to Hops Grill & Bar, Inc. in the form of dividends
or otherwise. The Company's obligations under the New Facility will be secured
by a pledge of all of the outstanding capital stock of the Company's direct,
wholly owned subsidiaries and will be guaranteed by Messrs. Mason and
Schelldorf. The Company intends to utilize the New Facility primarily to finance
the development of new restaurants.
The Company plans to repay $ million of existing debt with
proceeds from the offering and utilize the New Facility to repay the remaining $
million of existing debt. The Company believes that the remaining
availability of its New Facility along with cash flow from operations will be
sufficient to fund the Company's restaurant development through 1997. In order
to carry out its expansion plans beyond 1997, as well as to pay amounts due
under the New Facility, which matures in 1998, the Company will need additional
sources of capital. Such additional financing may be through bank financing or
the sale of debt or equity securities. There can be no assurance that such funds
will be available on favorable terms, if at all. The issuance of additional
equity securities could result in dilution to purchasers in the offering.
As is common in the restaurant industry, the Company has generally
operated with a working capital deficit. The Company does not have significant
receivables or inventory and receives trade credit on its purchases of food and
supplies. Working capital decreased $0.7 million to a deficit of $0.6 million in
1994 compared to $0.1 million in 1993. Working capital also decreased $0.7
million to a deficit of $1.3 million in 1995 compared to a deficit of $0.6
million in 1994. The decreases in both 1994 and 1995 are primarily the result
of an increase in trade payables and other accrued expenses due to new
restaurant openings.
23
<PAGE>
SEASONALITY AND QUARTERLY RESULTS
The Company's sales and earnings fluctuate seasonally. Quarterly
results have been and in the future are likely to be affected by the timing of
new restaurant openings. Because of the seasonality of the Company's business
and the impact of new restaurant openings, results for any quarter are not
necessarily indicative of the results that may be achieved for a full fiscal
year and cannot be used to indicate financial performance for the entire year.
<TABLE>
<CAPTION>
The following table sets forth summary statement of earnings data for
the seven quarters ended September 30, 1996, and has been derived from the
unaudited historical financial statements of the Predecessor Corporations. All
dollar amounts in the following table are expressed in thousands, except per
share data.
THREE MONTHS ENDED
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
-------- ------- -------- ------- -------- ------- -----
STATEMENT OF EARNINGS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales....................................... $ 6,265 $ 7,071 $ 6,926 $ 8,052 $ 9,643 $10,688 $11,027
Restaurant operating expenses:
Cost of sales........................... 1,917 2,267 2,269 2,617 3,122 3,488 3,702
Labor and other related expenses........ 1,744 2,060 2,004 2,339 2,661 3,031 3,283
Other restaurant operating expenses..... 1,381 1,572 1,594 2,264 1,867 2,120 2,364
Depreciation and amortization........... 230 284 338 390 396 497 666
-------- ------- -------- ------- -------- ------- -------
Total restaurant operating expenses. 5,272 6,183 6,205 7,610 8,046 9,136 10,015
-------- ------- -------- ------- -------- ------- -------
Income from restaurant operations........... 993 888 721 442 1,597 1,552 1,012
General and administrative expenses......... 563 489 510 474 386 388 511
-------- ------- -------- ------- -------- ------- -------
Operating income (loss)..................... 430 399 211 (32) 1,211 1,164 501
Interest expense, net....................... 185 244 242 268 270 336 387
Other income (loss)......................... 35 45 (10) (95) (11) (113) (16)
-------- ------- -------- ------- -------- ------- -------
Net income (loss) before taxes and elimi-
nation of minority partners' interest... 280 200 (41) (395) 930 715 98
Elimination of minority partners' interest.. 26 17 (8) 8 65 74 (12)
-------- ------- -------- ------- -------- ------- -------
Net income before taxes..................... 254 183 (33) (403) 865 641 110
Net income(1)............................... $ 157 $ 113 $ (20) $ (249) $ 536 $ 398 $ 68
======== ======= ======== ======= ======== ======= =======
Net income per share........................ $ 0.07 $ 0.05 $ (0.01) $ (0.11) $ 0.24 $ 0.18 $ 0.03
======== ======= ======== ======= ======== ======= =======
RESTAURANT DATA:
Average sales per restaurant open
for full period......................... $ 639 $ 609 $ 577 $ 598 $ 686 $ 683 $ 627
<FN>
- ---------------
(1) Reflects the effect on statement of earnings data, assuming the Company had
been treated as a C corporation rather than as an S corporation for federal
and state income tax purposes, and assuming that combined federal and state
income tax rates aggregate 38.0%. See "Reorganization and Prior S
Corporation Status" and Note 1 of Notes to Combined Financial Statements.
</FN>
</TABLE>
Historically, the Company has generated higher average sales per
restaurant during the first and second quarters of the calendar year. This is
primarily a result of the geographic concentration of the Company's restaurants
in Florida, which experiences a substantially higher level of tourism during
these periods. The Company believes the $105,000 or 5.8% increase in average
sales per restaurant for the first three quarters of 1996 versus the first three
quarters of 1995 is primarily the result of the reformatting of its menu in June
1995 and carryover benefits from its advertising campaign in the fourth quarter
of 1995.
Higher average sales per restaurant generally equate to higher income
from restaurant operations as operating efficiencies are realized. Income from
restaurant operations was lower in the fourth quarter of 1995, in absolute
dollars and as a percentage of sales, due to an increase in other operating
expenses related to the Company's first television campaign and the write-off of
certain amounts at year-end.
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General and administrative expenses decreased to 6.9% of sales in the
second quarter of 1995 compared to 9.0% of sales in the first quarter of 1995
primarily due to certain expenses incurred in the start-up of the operating
partner program. General and administrative expenses decreased, in absolute
dollars and as a percentage of sales, in each of the first two quarters of 1996
versus each quarter of 1995 and decreased as a percentage of sales in the third
quarter of 1996 versus 1995 due to increased management focus on the amount of
such expenses.
IMPACT OF INFLATION
Management does not believe inflation has had a significant effect
during the past several years on the Company's operations. Management believes
the Company has historically been able to pass on increased costs through menu
price increases, but there can be no assurance that it will be able to do so in
the future. The Company does not expect the legislated increase in the minimum
wage, effective October 1, 1996, to have a material effect on its operating
results.
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<PAGE>
BUSINESS
GENERAL
The Company's HOPS GRILL & BAR restaurant system of 18 full-service,
casual dining restaurants constitutes the nation's largest chain of restaurants
that feature an on-premises microbrewery and operate under one name. Each
restaurant features a diverse menu of popular foods, freshly prepared in a
display kitchen with a strict commitment to quality. The Company seeks to
heighten its customers' sense of value by offering generous portions at moderate
prices. As a complement to its menu, each HOPS GRILL & BAR restaurant offers
handcrafted lager-style beers and ales that are brewed in-house and selected for
their mass appeal and drinkability. To enhance the dining experience of its
customers, each restaurant provides attentive, friendly service in a casual,
upbeat atmosphere. The Company believes that its emphasis on consistent,
high-quality food and outstanding service, together with its signature
microbrewed beers, enable the Company to differentiate itself from its
competitors and provide its customers with an exceptional dining experience.
BUSINESS STRATEGY
The Company seeks to differentiate its restaurants and establish a
foundation for growth by emphasizing the following strategic elements:
PREMIUM-QUALITY FOOD; STRATEGICALLY DESIGNED MENU. At each HOPS GRILL &
BAR restaurant, the Company seeks to provide its customers with generous
portions of premium-quality foods, freshly prepared daily in a display kitchen.
The menu has been designed with a select number of items to permit the greatest
attention to quality while offering sufficient breadth to appeal to a wide
variety of customer tastes. The Company seeks to heighten its customers' sense
of value by offering its generous portions at moderate prices.
HANDCRAFTED MICROBREWED BEERS. HOPS GRILL & BAR restaurants feature
lager-style beers and ales, freshly brewed to exacting specifications in each
restaurant's on-premises observation microbrewery. Each beer is handcrafted from
an original recipe formulated by the Company's team of experienced brewmasters
and has been carefully selected for its mass appeal and drinkability and to
complement the restaurants' food selections.
EXCEPTIONAL CUSTOMER SERVICE. At each HOPS GRILL & BAR restaurant, the
Company seeks to provide its customers with an exceptional dining experience and
a level of service that exceeds their expectations. Service at each table is
provided by a well-trained staff utilizing a friendly, attentive and efficient
approach that emphasizes teamwork, situational awareness, communication, and
overall customer satisfaction.
MOTIVATED MANAGEMENT AND EMPLOYEES. The Company is committed to
attracting, developing and motivating its employees through the extensive use of
custom-designed recruiting and training programs, competitive compensation and
benefit programs, and opportunities for advancement. A key element of this
strategy is the use of operating partners, who are experienced restaurant
operators and who acquire a ten percent equity interest in the restaurants
within their operating territory. The Company believes that equity ownership
motivates the operating partners to actively manage existing restaurants and to
develop new restaurants.
DISTINCTIVE ATMOSPHERE AND DECOR. Each HOPS GRILL & BAR restaurant has
a casual, upbeat atmosphere and decor characterized by a display kitchen, an
observation microbrewery and the extensive use of custom-designed and
- -manufactured fixtures, seating areas and signage.
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CONCEPT
The HOPS GRILL & BAR concept is designed to appeal to a broad customer
base by incorporating the following:
MENU AND PRICING. HOPS GRILL & BAR restaurants feature an
American-style menu that includes top choice steaks and prime rib, smoked baby
back ribs, fresh fish, chicken and pasta dishes, deluxe burgers and sandwiches,
hand-tossed salads with homemade dressings, appetizers, soups, and desserts.
Menu items are prepared from scratch daily in a display kitchen. The Company's
restaurants serve both lunch and dinner, with prices ranging from $5.45 to $6.45
for appetizers, $3.95 to $6.95 for salads, $5.95 to $7.95 for burgers and
sandwiches, and $8.45 to $16.95 for dinner entrees. The menu also offers
separate selections for children. Management believes that the cost of a typical
meal at the Company's restaurants, including beverages, currently ranges from
$6.00 to $9.00 per person for lunch and $13.00 to $15.00 per person for dinner.
All menu items are offered in both the dining and the bar areas, and
the restaurants offer a selection of quality wines and a full liquor bar. Sales
of alcoholic beverages accounted for 17.8% of the Company's total sales (with
beer constituting 58.0% of sales of alcoholic beverages) during the 12-month
period ended September 30, 1996.
HANDCRAFTED BEER. Consumer interest in higher quality, more flavorful
beer has resulted in significant growth in the microbrewed and specialty beer
markets during the last several years. To address this growing consumer
interest, HOPS GRILL & BAR restaurants feature handcrafted beer brewed
on-premises by each restaurant's brewmaster. The Company utilizes its original
recipes to brew its distinctive lager-style beers and ales - Clearwater
Light(TM), Lightning Bold Gold(TM), Hammerhead Red(TM), and A-1 Ale. These
freshly brewed beers are served in a frozen glass mug and, except for one
nonalcoholic beer, are the only beers served at HOPS GRILL & BAR restaurants.
The restaurants' handcrafted beers are intended to complement the food
offerings.
DESIGN AND LAYOUT. HOPS GRILL & BAR restaurants range in size from
approximately 5,000 to 7,300 square feet and are designed to create a dramatic
visual impact on their customers. Each HOPS GRILL & BAR restaurant features warm
lighting, high ceilings and wood-finished interiors complemented by an array of
stainless steel and copper brewing tanks and equipment. The dining and bar areas
are spacious, and the kitchens are contemporary and open. The attractive
on-premises brewing equipment is an integral aspect of the design and enhances
the ambiance of the restaurant. The observation microbreweries in the
restaurants are efficiently designed to occupy from 450 to 750 square feet. The
restaurants' dining and bar areas seat from 160 to 240 customers. In select
locations, the restaurants also provide outdoor patio service which allows for
increased seating capacity and an open-air dining experience for customers.
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<TABLE>
<CAPTION>
RESTAURANT LOCATIONS
The following table sets forth certain information regarding the
Company's 18 existing restaurant locations.
APPROXIMATE
SQUARE OWNED
LOCATION OPENING DATE FEET OR LEASED
- -------- -------------- ------------ ----------
<S> <C> <C> <C>
Clearwater, Florida........................... November 1989 5,600 Leased
Tampa, Florida................................ April 1991 6,800 Leased
Palm Harbor, Florida.......................... May 1992 5,600 Leased
Tampa, Florida................................ November 1992 5,600 Owned
Bradenton, Florida............................ October 1993 5,400 Leased
Lakeland, Florida............................. December 1993 6,000 Leased
Jacksonville, Florida(1)...................... March 1994 6,000 Leased
Tampa, Florida................................ June 1994 7,100 Owned
Orange Park, Florida(1)....................... September 1994 6,000 Leased
Port Richey, Florida.......................... February 1995 5,000 Owned
Orlando, Florida.............................. April 1995 5,000 Owned
Ocala, Florida(1)............................. May 1995 5,900 Leased
Coral Springs, Florida........................ October 1995 5,900 Leased
Boynton Beach, Florida........................ February 1996 5,900 Leased
St. Petersburg, Florida....................... March 1996 5,000 Owned
Bowling Green, Kentucky....................... May 1996 7,300 Owned
Denver, Colorado(1)........................... July 1996 5,400 Leased
Altamonte Springs, Florida.................... August 1996 6,500 Leased
<FN>
- ----------
(1) Operated by a development joint venture that is controlled by the Company.
See "-Ownership Structures."
</FN>
</TABLE>
UNIT ECONOMICS
Average annual sales for the 13 HOPS GRILL & BAR restaurants that were
open for the entire 12-month period ended September 30, 1996, were approximately
$2.5 million. During the 12 months ended September 30, 1996, the cost of
developing and opening each HOPS GRILL & BAR opened during the period averaged
approximately $1.4 million, including building, site improvement costs,
restaurant fixtures and equipment, and approximately $160,000 in microbrewery
equipment. Land costs for the two restaurants opened by the Company during this
period were approximately $800,000 per restaurant. Preopening costs, which
include labor costs, costs of hiring and training personnel, and certain other
costs related to opening new restaurants, were an average of approximately
$150,000 per restaurant during this period. In certain instances, the Company
has received landlord contributions in the form of tenant finish allowances,
reducing the cash required to open a new restaurant.
The Company estimates that the cost of developing each additional
restaurant in 1997 will average approximately $1.4 million, including building,
site improvement costs, restaurant fixtures and equipment, and approximately
$150,000 in microbrewery equipment. The Company expects that the cost of land
for four of the nine restaurants expected to be opened in 1997 will average
approximately $750,000 per restaurant. Preopening costs during 1997 are expected
to average approximately $140,000 per restaurant.
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SITE SELECTION
Site selection is critical to the success of individual restaurants,
and the Company devotes significant time and resources in analyzing each
prospective site. Once a particular market has been identified and agreed upon
by senior management, real estate brokers and agents are engaged to assist
senior management and the Company's local operating partner in locating specific
sites. Factors such as local market demographics, including population density,
age range, median household income and median home prices are considered. In
addition to analyzing demographic information for each prospective site,
management considers factors such as visibility, traffic patterns,
accessibility, proximity of shopping areas, office parks and tourist
attractions, and the availability of parking. The Company also reviews potential
competition and attempts to analyze the profitability of other national chain
restaurants operating in the area.
The Company has developed a series of prototype designs and
specifications that allows for the development of HOPS GRILL & BAR restaurants
as free-standing buildings or as an end-cap of a strip shopping center. Fifteen
of the Company's restaurants are located in free-standing buildings, and three
are a part of a strip shopping center. Additionally, six of the free-standing
HOPS GRILL & BAR restaurants involved the remodeling of an existing building and
nine were newly constructed by the Company. In select locations, the restaurants
also provide outdoor patio service which allows for increased seating capacity
and an open-air dining experience for customers. The Company uses an experienced
in-house development staff to supervise the construction process for new
restaurants, including contracting with vendors for all leasehold improvements,
restaurant furniture and restaurant and microbrewery equipment. The Company
believes that its ability to utilize a variety of existing restaurant and other
retail space, as well as its ability to construct new restaurants from the
ground up, enables the Company to obtain desirable locations that would prove
impractical if the Company were constrained by rigid design requirements.
EXPANSION STRATEGY
The Company opened five HOPS GRILL & BAR restaurants in 1996 and plans
to open nine and 12 HOPS GRILL & BAR restaurants in 1997 and 1998, respectively.
The Company has entered into agreements to purchase the real estate for
restaurants in Charlotte, North Carolina, Plantation, Florida, and Orlando,
Florida and has entered into leases for restaurants in Colorado Springs,
Colorado, Miami, Florida, Pompano Beach, Florida, and Pembroke Pines, Florida.
Generally, each lease to be entered into or property to be purchased by the
Company will be conditioned upon the ability of the Company to obtain the
permits and licenses necessary to operate the restaurant identified for such
site.
A key element of the Company's expansion strategy is its operating
partner program. Under this program, the Company enters into an agreement for
restaurant development within a prescribed area with an experienced restaurant
operator who can provide local market knowledge and management. Each operating
partner acquires a ten percent equity interest in the restaurants within the
operating partner's territory. The equity interest provides incentive to the
operating partner to actively supervise the development and operations of his
restaurants. The Company believes that its operating partner programs enhance
its ability to expand into new markets. Currently 10 HOPS GRILL & BAR
restaurants operate under five operating partner arrangements, and the Company
expects that all of the restaurants it intends to develop in 1997 will be
operated under operating partner arrangements.
Another important element of the Company's expansion strategy has been
its development joint ventures. The Company is currently a party to three
development joint ventures for the development of HOPS GRILL & BAR restaurants
in southeast Florida, Colorado, and northeast Florida. The Company believes that
its development joint ventures have allowed the Company to more quickly expand
its concept into new territories. While no further development will occur within
the northeast Florida development joint venture, the two remaining development
joint ventures may develop up to an additional 15 restaurants. It is currently
anticipated that six of the nine HOPS GRILL & BAR
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<PAGE>
restaurants to be opened in 1997 will be developed through the Company's
existing development joint ventures. See "-Ownership Structures-Joint Venture
Restaurants."
RESTAURANT OPERATIONS
MANAGEMENT AND EMPLOYEES. The Company's overall restaurant operations
are directed by Thomas A. Schelldorf, the Company's Executive Vice President and
Chief Operating Officer, and Timothy V. Curci, the Company's Vice
President-Operations. Oversight of the Company's eight Tampa Bay area
restaurants is undertaken directly by Company management with responsibility for
the remaining 10 restaurants organized geographically with five operating
partners. Operating partners currently have responsibility for between one and
three restaurants. As restaurant development continues, the Company expects each
operating partner to have responsibility for three to six restaurants.
The typical HOPS GRILL & BAR's restaurant management staff has one
general manager and two or three assistant managers, as well as a kitchen
manager, an assistant kitchen manager and a brewmaster. Brewmasters generally
supervise the microbrewery operations of one or two HOPS GRILL & BAR
restaurants. The Company seeks to attract and retain high-quality, experienced
restaurant management personnel by providing them with responsibility and
financial incentives (primarily bonuses based upon the operating performance of
their restaurants) as well as the potential for advancement within the Company's
restaurant system. Selected, proven, HOPS GRILL & BAR general managers are
offered five-year employment agreements and, in addition to their base salaries,
are compensated under a bonus arrangement which is based upon the performance of
their restaurants.
The Company believes that its restaurant employees have been a
significant factor in its ability to provide customers with an exceptional
dining experience. The Company believes that it must provide its employees a
fun, fair work environment with an opportunity for advancement and demonstrate a
genuine concern for the development of each employee. Through periodic manager
meetings, focus groups, and confidential employee surveys, the Company involves
each employee in the evaluation and improvement of restaurant operations.
QUALITY CONTROL. The Company strives to maintain quality and
consistency at each of its restaurants by assisting its personnel in achieving
high levels of execution in service, food and beverage preparation, brewing
quality assurance and facility maintenance. The Company also utilizes a team of
experienced personnel to regularly monitor the performance of each restaurant.
The Company adheres to strict specifications with respect to its food
ingredients. In addition, samples of the Company's beer are collected from each
location on a weekly basis and analyzed by the Company's chief brewmaster for
quality and consistency. To further ensure the quality and consistency of its
handcrafted beers, the Company purchases all of its microbrewery equipment from
a single vendor. See "Risk Factors-Dependence upon Single Supplier."
TRAINING AND RECRUITING. The Company devotes significant time and
resources to management training. The Company utilizes a comprehensive,
custom-designed management training program that covers topics such as general
restaurant management, kitchen operations, food management, food service
techniques, bar and microbrewery operations, customer service, and
restaurant-level accounting and financial management. In general, the Company
strives to foster an environment in which its restaurant management personnel
emphasize performance in the Company's three key results areas: customer
service, employee management, and financial performance.
The Company also devotes substantial resources to the recruiting,
hiring and training of the Company's restaurant employees. In order to identify
high-quality, retainable employees, the Company utilizes custom-designed
selection programs for both front-of-the-house and back-of-the-house employees.
The selection program for front-of-the-house employees consists of a coordinated
battery of tests designed with the assistance of an outside consultant to test a
candidate's aptitude, work values, and ability to understand and apply the
Company's commitment to exceptional customer service. The selection program for
back-of-the-house employees consists of a coordinated battery of
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<PAGE>
tests designed with the assistance of an outside consultant to test a
candidate's aptitude, attention to detail, and ability to reason and analyze. In
addition, the Company's restaurant personnel receive intensive on-the-job
training during which the Company's service philosophy is emphasized. The
Company has established a team of full-time training professionals to manage the
training of kitchen and service personnel for new restaurants. All restaurant
employees are trained and encouraged to participate in the achievement of
restaurant-level financial objectives.
ADVERTISING AND MARKETING. The Company strives to provide its customers
with dining experiences that encourage repeat business and historically has
relied primarily on word of mouth to attract new customers. HOPS GRILL & BAR
restaurants also support charitable and civic organizations and utilize a
limited amount of targeted outdoor billboard, television, and radio advertising.
The Company recently purchased ten custom-designed special event trailers (five
from which the Company's handcrafted beers can be served and five from which
food can be served) to promote its restaurants at various community events. The
Company expects to utilize greater amounts of radio and television advertising
as its markets become more media-efficient. To supplement its marketing efforts,
the Company sells HOPS GRILL & BAR merchandise such as T-shirts, glassware, caps
and other items bearing the restaurant's name and logo as well as the names of
certain of the restaurants' more popular handcrafted beers.
PURCHASING. The Company currently purchases a substantial portion of
its food items from Henry Lee Co., a large distributor based in Miami, Florida.
The Company believes that alternative supply sources are readily available.
Certain of the Company's food items, such as produce, seafood, and dairy
products, as well as certain beverage items, are purchased from local vendors or
distributors.
RESTAURANT REPORTING. During the last 12 months, the Company purchased
new computer hardware and software, including a management information system
and point-of sale terminals for each restaurant. This integrated system allows
for the daily tracking of restaurant operating results and provides restaurant
managers with monthly operating statements for their restaurants. Management
believes that these systems, together with the Company's expanded management
team of professionals, has enhanced its budgeting, forecasting, and accounting
capabilities.
BREWING OPERATIONS
The microbreweries at the HOPS GRILL & BAR restaurants are designed
with the capacity to produce between 700 and 2,200 barrels per year. Each
microbrewery is custom designed to be integrated into the restaurant layout in
the most efficient and aesthetically pleasing manner and emphasizes ease of
control, use and flexibility.
Each HOPS GRILL & BAR restaurant employs a brewmaster and in some
restaurants one or more apprentice brewers. All of the Company's brewers strive
to ensure that every batch of beer brewed is of the highest quality and
consistency. Beers from each restaurant are tested weekly to ensure quality and
uniformity. Beer is produced using only natural malted barley, hops, yeast and
water. Malted barley, the main ingredient of beer, is produced when barley is
moistened, allowed to germinate and then dried. The malted barley is then milled
and mixed with warm water where grain starches are converted to fermentable
sugars and then strained, producing a clear amber liquid called wort. Wort is
boiled in brew kettles, and hops are added to add bitterness and flavor to the
brew. The mixture is then decanted, cooled, and placed in a tank where yeast is
added and the wort is allowed to ferment to become beer. When the fermentation
process produces the desired result, the beer is then cooled and held in the
fermentation tank for the required amount of time where the flavor is developed.
The beer is then filtered clear and transferred to pressurized tanks in a cold
room in each restaurant where it is kept chilled and transferred directly to
beer taps. The brewing process from the conversion of raw materials to the
serving of beer is typically completed in 14 days, depending on the type of beer
being brewed.
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<PAGE>
HOPS GRILL & BAR restaurants serve four signature beers which are
formulated to complement the restaurants' menu of premium-quality foods:
- Clearwater
Light \trademark\ - A reduced carbohydrate, low calorie
lager-style beer, pale in color, light
in body and smooth in character.
- Lightning Bold
Gold \trademark\ - A classic golden American lager-style
beer, slightly dry wit a flowery hop
aroma. Finished with imported Saaz hops.
- Hammerhead
Red \trademark\ - A rich, full-bodied amber ale.
Handcrafted using a combination of
caramel and chocolate malts to balance
the hops bitterness with a hint of malt
sweetness.
- A-1 Ale - A rich, full-bodied, dark, creamy ale
with a smooth finish. This combination
of flavors is attained with a blend of
caramel, chocolate and dark malts to
provide sweetness which balances the
hops bitterness.
The Company's handcrafted beers are also sold by the keg for
off-premises consumption in Kentucky and Colorado, where such sales are legally
permitted.
MICROBREWED AND SPECIALTY BEER MARKET
Consumer interest in higher quality, more flavorful beer has resulted
in significant growth in the microbrewed and specialty beer markets during the
last several years. According to the NEW BREWER, a leading beer industry
publication, U.S. specialty beer sales (in barrels) have increased by
approximately 40% or more for each of the past three years and have grown at a
compound annual rate of approximately 40% since 1986. Despite these high levels
of growth, sales of microbrewed and domestic specialty beer only represented
approximately 2% of the total beer production in the United States in 1995.
According to the Institute for Brewing Studies, the number of microbreweries has
grown from 30 in 1986 to approximately 276 in 1995, while the number of brewpubs
has increased to approximately 502 in the United States in 1995, an increase
from only 16 brewpubs in 1986.
OPERATING PARTNER PROGRAM
A key element of the Company's restaurant development strategy is its
operating partner program. Under this program, the Company recruits and hires
experienced restaurant operators (referred to as "operating partners") to manage
three to six HOPS GRILL & BAR restaurants in a specific territory. Under the
Company's operating partner program, each operating partner is given the
opportunity to acquire approximately a ten percent interest in the restaurants
under his supervision for a specified price, upon entering into a five-year
employment agreement with the Company. Under the terms of the employment
agreements, each operating partner receives monthly distributions of adjusted
net profits from his restaurants as advances against future distributions which
he might otherwise be entitled to receive as an equity owner. The Company is
required to repurchase the interests of the operating partner upon the
termination or expiration of the operating partner's employment agreement. The
price at which an operating partner's interest can be repurchased is equal to
the price actually paid by the operating partner if such partner's employment is
terminated prior to the end of the five-year term of the employment agreement or
at the fair market value of his interest (calculated pursuant to a
pre-determined formula) after five years of employment. Fair market value is
defined in the employment agreements as an amount equal to four times the annual
cash flow (as determined pursuant to the agreement) of the restaurants for the
most recent 12-month period or the amount otherwise determined in good faith by
the Board of Directors of the Company. Each operating partner employment
agreement also contains confidentiality and non-competition covenants by the
operating partner. The non-competition covenants generally provide that during
the
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operating partner's term of employment and for a period of two years thereafter,
the operating partner will not hold an ownership interest in, or serve as an
officer, director, employee, independent contractor, consultant, or in any other
capacity for, any restaurant business that makes use of a microbrewery concept
and which is located or is intended to be located within a 15-mile radius of any
restaurant owned or operated by the Company.
OWNERSHIP STRUCTURES
The Company's ownership interests in HOPS GRILL & BAR restaurants are
divided into two categories: (i) Company-owned restaurants and (ii) development
joint venture restaurants.
COMPANY-OWNED RESTAURANTS. Fourteen HOPS GRILL & BAR restaurants are
owned and operated by the Company. Six of these Company-owned restaurants are
managed by operating partners. Of the eight Company-owned restaurants that do
not have operating partners, five have general managers who have five-year
employment agreements with the Company. Under these agreements, in addition to
their base salaries, such general managers also receive bonus compensation based
upon the performance of their respective restaurants.
DEVELOPMENT JOINT VENTURE RESTAURANTS. The Company is currently a party
to three development joint ventures for the development of HOPS GRILL & BAR
restaurants. Two of the development joint ventures are structured as limited
partnerships in which the Company holds a 51% or 75% equity interest and serves
as the sole general partner. The other development joint venture is a series of
three general partnerships in which the Company owns approximately 46% and
controls approximately 56% of the equity. In each development joint venture, an
operating partner holds an approximate ten percent equity interest, and the
remainder of the venture is owned by the Company's development joint venture
partner.
The first of these ventures (the "Colorado Partnership") was formed in
January 1996, to develop up to three HOPS GRILL & BAR restaurants in the state
of Colorado. The Colorado Partnership has developed one restaurant in Denver,
Colorado and has secured a lease for a second restaurant in Colorado Springs,
Colorado. The Company expects to open the Colorado Springs restaurant in the
second quarter of 1997. The Company is evaluating locations for the third
restaurant to be developed under the Colorado Partnership. However, it has not
yet determined a location or opening date for that restaurant.
The second of these ventures (the "South Florida Partnership") was
formed in October 1996, to develop up to 13 HOPS GRILL & BAR restaurants in the
southeast Florida counties of Dade, Broward, Palm Beach and Martin. To date, the
South Florida Partnership has developed no restaurants. However, the venture has
secured leases for three HOPS GRILL & BAR restaurants in Pompano Beach, Florida,
Miami, Florida, and Pembroke Pines, Florida. Additionally, the South Florida
Partnership has purchased the real estate for a restaurant in Plantation,
Florida. The South Florida Partnership was formed to continue the development of
the southeast Florida market area that was begun by a prior development joint
venture between the Company and the other partners of the South Florida
Partnership. The Company acquired the interest of its development joint venture
partners in the prior development joint venture as a part of the Reorganization.
See "Reorganization and Prior S Corporation Status." The prior development joint
venture had developed a HOPS GRILL & BAR restaurant in each of Coral Springs and
Boynton Beach. The Company, in conjunction with its development joint venture
partners, is evaluating locations for the remaining HOPS GRILL & BAR restaurants
to be developed under the South Florida Partnership. However, it has not yet
determined locations or opening dates for such restaurants.
Each of the limited partnership development joint ventures provides the
Company with a right of first refusal to purchase the interest of the Company's
development joint venture partner and provides the Company with the option to
purchase the interest of the Company's development joint venture partner on
specified terms in the event that the Company's development joint venture
partner breaches the terms of the development joint venture. One of these
development joint ventures also
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<PAGE>
obligates the Company to purchase the interest of its development joint venture
partner upon the death or permanent disability of the principal of the
development joint venture partner. Each of the development joint ventures
provides the Company with the option to purchase the development joint venture
partner's interest in certain circumstances. In the event that the Company
elects to purchase the development joint venture partner's interest, the Company
may pay the purchase price with cash and a note or, at the Company's election,
in common stock of the Company, in which case the Company will grant to the
development joint venture partner certain registration rights with respect to
the resale of the shares of common stock issued to the development joint venture
partner. In addition, one of the development joint ventures provides that if the
Company decides to transfer for value to an unaffiliated party more than 50% of
the Company's interest in the limited partnership joint venture, the Company
will permit the development joint venture partner to sell, and the Company may
require the development joint venture partner to sell, on the same terms and
conditions obtained by the Company, a proportionate share of the development
joint venture partner's interest in the development joint venture.
The third of these ventures (the "Northeast Florida Venture") was begun
in February 1993 to develop HOPS GRILL & BAR restaurants in the northeast
Florida counties of Alachua, Clay, Duval, and Marion. To date, the Northeast
Florida Venture has developed a HOPS GRILL & BAR restaurants in each of
Jacksonville, Orange Park, and Ocala, Florida. No further development under the
Northeast Florida Venture will occur by its terms. The Northeast Florida Venture
consists of three general partnerships of common ownership, each of which owns
and operates one HOPS GRILL & BAR restaurant. The partnership agreements for
each of these general partnerships provides the Company with a right of first
refusal to purchase the interest of the Company's development joint venture
partner and provide the Company with the option to purchase the interest of the
Company's development joint venture partner on specified terms in the event that
the Company's development joint venture partner breaches the terms of the
development joint venture. The general partnership development joint ventures
also obligate the Company to purchase the interest of its development joint
venture partner upon the death or permanent disability of the principal of the
development joint venture partner. Control of the day-to-day operations of the
general partnership development joint ventures is vested in a two person board
of managers composed of one Company representative and one representative of the
Company's 44.1% development joint venture partner. In the event that the board
of managers of the respective general partnerships is unable to agree upon any
matter, the partnership agreements provide that the matter will be decided by
the party which controls a majority of the equity of the partnership. The
Company controls a majority of the equity of each of the general partnerships.
RESTAURANT OPERATING AGREEMENTS. The Company has entered into
restaurant operating agreements with respect to each HOPS GRILL & BAR restaurant
developed by the development joint ventures. These operating agreements require
the development joint venture to operate its HOPS GRILL & BAR restaurant in
strict conformity with the Company's unique system and method of restaurant
operation (as modified from time to time). The agreements require the Company to
provide training for the restaurant general manager, kitchen manager,
brewmaster, and certain other management personnel and to provide certain other
services in connection with the opening and operation of the restaurants. The
agreements require each restaurant to pay the Company a monthly operating fee of
up to 6% of such restaurant's monthly gross sales. Each development joint
venture is also required to pay the Company (or a marketing agent or affiliate
designated by the Company) a monthly promotional fee equal to 1% of such
partnership's monthly gross sales (which may be increased to up to 3% in the
Company's sole discretion) and to spend 2% of monthly gross sales for local
promotional activities, provided that the Company cannot require the restaurants
to make payments, in the aggregate, of more than 5% of monthly gross sales for
advertising and promotional expenses. Each of the operating agreements also
requires the restaurants to maintain certain minimum levels of insurance,
including general public liability insurance ($1.0 million each occurrence, $2.0
million aggregate), fire and extended coverage (full replacement value),
umbrella liability insurance ($2.0 million), and workers' compensation coverage
(statutory requirements).
DEVELOPMENT OPTION AGREEMENTS. The Company has entered into three
separate development option agreements (one of which has, by its terms, expired)
pursuant to which the development joint ventures were formed for the purpose of
developing HOPS GRILL & BAR restaurants.
34
<PAGE>
Pursuant to these agreements, each of the respective developers was permitted to
participate in the development and ownership of the initial restaurant developed
in the specified development territory and has the option, subject to certain
limitations, to participate in the development and ownership of additional
restaurants in the territory during a specified period of time. Pursuant to
their development option agreements, each of the developers agreed to pay the
Company a development fee of $10,000 to $30,000 for each restaurant developed.
The Company has the right to terminate each of the development option agreements
in certain circumstances. Each of the developers also agreed to make capital
contributions with respect to each restaurant developed by the Company and such
developer. In addition, if a developer fails to participate in the development
and ownership of any additional restaurant in which the developer is entitled to
participate, he thereafter forfeits his right to participate further in the
development of additional restaurants in the territory, and the Company
thereafter may proceed to develop additional restaurants in the territory on its
own or with third parties. Each of the development option agreements impose
certain confidentiality and noncompetition restrictions on the developer.
COMPETITION
The restaurant industry is intensely competitive with respect to
service, quality, price, and atmosphere, among other factors. The Company's
restaurants compete with a large number of other restaurants and brewpubs,
including national and regional restaurant chains and franchised restaurant
systems, many of which have greater financial resources, more experience, and
longer operating histories than the Company, as well as locally owned
independent restaurants. The restaurant industry generally is affected by
changes in consumer tastes, national, regional or local economic conditions,
demographic trends, traffic patterns, and the type, number, and location of
competing restaurants. The Company believes its ability to compete effectively
will continue to depend upon its ability to offer high-quality menu items with
superior service in a distinctive dining environment.
The Company's casual dining business also competes with various types
of food businesses, as well as other businesses, for restaurant locations. The
Company believes that site selection is one of the most crucial decisions
required in connection with the development of restaurants. As a result of the
presence of competing restaurants in the Company's areas of operation,
management devotes great attention to obtaining what it believes will be premium
locations for new restaurants, although no assurances can be given that the
Company will be successful in this regard.
GOVERNMENT REGULATION
GENERAL. The Company's restaurants are subject to regulation by federal
agencies and to licensing and regulation by state and local health, sanitation,
safety, fire and other departments relating to the development and operation of
restaurants. These regulations include matters relating to environmental,
building and zoning requirements, the preparation and sale of food and alcoholic
beverages, designation of non-smoking and smoking areas and accessibility of
restaurants to disabled customers. Various federal and state labor laws govern
the Company's relationship with its employees, including minimum wage
requirements, overtime, working conditions, and immigration requirements.
Significant additional government-imposed increases in minimum wages, paid
leaves of absence and mandated health benefits, or increased tax reporting and
tax payment requirements for employees who receive gratuities, could have an
adverse effect on the Company. In August 1996, the President of the United
States signed into law a bill increasing the minimum hourly wage effective
October 1, 1996. However, the law contains provisions that, among other things,
maintains the cash wage for tipped employees at the current rate. Delays or
failures in obtaining the required construction and operating licenses, permits
or approvals could delay or prevent the opening of new restaurants. Management
believes the Company is in substantial compliance with applicable laws and
regulations governing its operations.
35
<PAGE>
ALCOHOLIC BEVERAGE REGULATION. Each of the Company's restaurants is
subject to licensing and regulation by a number of governmental authorities. The
Company operates its HOPS GRILL & BAR restaurants in compliance with federal
licensing requirements imposed by the Bureau of Alcohol, Tobacco and Firearms of
the United States Department of the Treasury, as well as the licensing
requirements of states where its restaurants are located. Alcoholic beverage
control regulations require each of the Company's restaurants to apply to a
state authority and, in certain locations, county or municipal authorities for a
license and permit to brew and/or sell alcoholic beverages on premises.
Typically, licenses must be renewed annually and may be revoked or suspended for
cause at any time. Alcoholic beverage control regulations relate to numerous
aspects of the daily operations of the Company's restaurants, including minimum
age of patrons and employees, hours of operation, advertising, wholesale
purchasing, inventory control and brewing, handling, storage and dispensing of
alcoholic beverages. The Company has obtained all regulatory permits and
licenses necessary to operate its restaurants and the breweries at the HOPS
GRILL & BAR restaurants. Failure on the part of the Company to comply with
federal, state or local regulations could cause the Company's licenses to be
revoked and force it to cease the brewing and/or sale of alcoholic beverages at
its restaurants. In addition, changes in legislation, regulations or
administrative interpretation of liquor laws after the opening of restaurants in
a jurisdiction may prevent or hinder the Company's expansion or operations in
that jurisdiction. The failure to receive or retain, or a delay in obtaining, a
liquor or brewpub license in a particular location could adversely affect the
Company's ability to obtain such a license elsewhere.
The Company is subject to "dram-shop" laws in the state of Florida and
will be subject to such statutes in certain other states. These laws generally
provide a person injured by an intoxicated person the right to recover damages
from an establishment which wrongfully served alcoholic beverages to such
person. The Company carries liquor liability coverage as part of its existing
comprehensive general liability insurance which it believes is consistent with
coverage carried by other entities in the restaurant industry. However, a
judgment against the Company under a dram- shop statute in excess of the
Company's liability coverage could have a material adverse effect on the
Company.
BREWPUB REGULATION. Historically, the alcoholic beverage laws of most
states prohibited the manufacture and retail sale of beer to consumers by a
single person or entity or related persons or entities. At present, 48 states
allow for the limited manufacture and retail sale of microbrewed beer by
restaurants and bars classified as "brewpubs" under state law. As the result of
the on-premises microbrewery in each HOPS GRILL & BAR restaurant, the Company's
restaurants are required to comply with such state "brewpub" laws in order to
obtain necessary state licenses and permits. Laws in Mississippi and Montana
prohibit the operation of brewpubs. Additionally, many states impose
restrictions on the operations of brewpubs, such as a prohibition on the
bottling of beer, a prohibition on the sale of beer for consumption outside of
the restaurant premises, and a limitation on the volume of beer that may be
brewed at any location, as well as certain geographic limitations. In addition,
certain states limit the number of brewpubs that may be owned by any person or
entity or a related group of entities. The Company's ability to own and operate
HOPS GRILL & BAR restaurants in any state is and will continue to be dependent
upon its ability to operate within the regulatory scheme of such state.
Restrictions currently imposed by two of the states (Kansas and Michigan) that
allow for the operation of brewpubs may make it impractical for the Company to
operate HOPS GRILL & BAR restaurants in such states under the Company's present
system of operation. Additionally, there can be no assurance that states that
currently permit the operation of brewpubs will not change their laws or
regulations in a manner that would prohibit brewpub operation or otherwise
adversely affect the operations of the Company.
Certain states, including Florida, have restrictions on the number of
barrels of beer that can be brewed annually by a brewpub. These various state
liquor laws are continually changing, and the Company may be hindered or
prohibited from opening HOPS GRILL & BAR restaurants in certain markets.
FEDERAL EXCISE TAX. The United States federal government currently
imposes an excise tax of $18 per barrel on each barrel of beer produced for
domestic consumption in the United States.
36
<PAGE>
However, each brewer with production under 2,000,000 barrels per year is granted
a small brewer's excise tax credit in the amount of $11 per barrel on its first
60,000 barrels produced annually. In 1995, the Company took advantage of
approximately a $60,000 credit pursuant to this exemption. The Company is not
aware of any plans by the federal government to reduce or eliminate the small
brewer's credit. Individual states also impose excise taxes on alcoholic
beverages in varying amounts, which also are subject to change. It is possible
that excise taxes will be increased by both the federal government and a number
of the states. Increased excise taxes on alcoholic beverages have been
considered by the U.S. Congress as an additional source of tax revenue in
connection with various proposals and could be included in future legislation.
Certain states have special taxes on the sale or production of alcoholic
beverages. Increases in taxes on malt beverages, if enacted, could adversely
affect the Company.
TRADEMARKS AND SERVICE MARKS
The Company is the owner of the federal service mark registrations for
the marks "Hops Grill & Bar Microbrewery \registered\" and Design and "Hops!
\registered\." Pursuant to the settlement of a dispute involving the rights to
the word mark "Hops! \registered\" and the federal registration thereof, in
February 1995 as partial consideration for the transfer of the federal
registration to the Company, the Company licensed certain limited rights to use
the word mark "Hops!\registered\" to the former owner of the federal
registration of that mark for use on an exclusive, royalty-free basis, solely in
the state of Arizona and in San Diego and Imperial counties in southern
California. This license requires the licensee to utilize the word mark solely
in connection with its existing restaurant concept and in a manner so as to
distinguish itself from the Company and its HOPS GRILL & BAR restaurants. This
license shall continue for so long as the licensee continues to operate
restaurants in the licensed territory under the licensed mark and will
effectively prevent the Company from opening restaurants in that territory
utilizing the "Hops!\registered\" mark.
The Company also has federal trademark and service mark applications
pending for a number of additional marks, including "Hammerhead Red
\trademark\," "Clearwater Light\trademark\," "Lightning Bold Gold \trademark\,"
and "Hop E. Hare \trademark\." In seeking registration for "Hammerhead Red
\trademark\" the Company experienced opposition from a brewpub chain in Oregon
that is also seeking to register the trademark "Hammerhead" for ale. This
dispute has been fully settled with the Company having exclusive rights to the
trademark "Hammerhead Red \trademark\" in the states of Tennessee, Kentucky,
Florida, Georgia, Alabama, Mississippi, North Carolina, and South Carolina,
including the right to obtain a federal trademark registration for those states,
and the other brewpub chain having exclusive rights in the remainder of the
United States.
The Company regards its marks as having substantial value and as being
an important factor in the marketing of its HOPS GRILL & BAR restaurants. While
the Company is aware of certain persons who may claim certain limited local
rights (in areas where the Company does not yet have restaurants) in marks
utilized by the Company in its restaurants, the Company is not aware of any
infringing uses or claims to such marks that could have a material adverse
effect upon the Company's current business or its ability to expand its HOPS
GRILL & BAR restaurants. The Company's policy is to pursue registration of its
marks whenever practical and to oppose vigorously any infringement of its marks.
EMPLOYEES
At October 31, 1996, the Company employed 1,337 persons, 26 of whom
served in administrative capacities, 152 of whom served as restaurant management
personnel, and the remainder of whom were hourly personnel. No employee is
covered by a collective bargaining agreement, and the Company has never
experienced an organized work stoppage, strike or labor dispute. The Company
considers relations with its employees to be satisfactory.
37
<PAGE>
PROPERTIES
Twelve of the Company's 18 restaurants are located on leased sites. The
Company either owns or leases the furnishings, fixtures and restaurant and
microbrewery equipment in each of its restaurants. Restaurant leases have
expiration dates ranging from June 2004 to September 2029 (including existing
renewal options). The Company does not anticipate any difficulties in renewing
its existing leases as they expire; however, there can be no assurance that the
Company will be able to renew such leases. See Note 4 of Notes to Combined
Financial Statements for information regarding aggregate minimum rentals paid by
the Company for recent periods and information regarding the Company's
obligation to pay minimum rentals in future years. See "-Restaurant Locations."
The Company leases approximately 10,000 square feet of office space for
its executive offices in Tampa, Florida. The Company believes that this space is
adequate for its current and foreseeable needs.
LITIGATION
The Company is not currently a party to, and no property of the Company
is the subject of, any material pending legal proceeding. The Company is
involved in routine litigation from time to time.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors is divided into three classes with the
members of each class serving three-year terms expiring at the third annual
meeting of shareholders after their election or until their respective
successors are duly elected and qualified. The following table sets forth
certain information with respect to the current directors and executive officers
of the Company.
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
---- --- -------- --------
<S> <C> <C>
David L. Mason 46 Chairman of the Board, President, and 1999
Chief Executive Officer
Thomas A. Schelldorf 41 Director, Executive Vice President, and 1998
Chief Operating Officer
Terence M. Terenzi 30 Director, Vice President-Finance, Chief 1997
Financial Officer, Secretary and Treasurer
Timothy V. Curci 30 Vice President-Operations
</TABLE>
DAVID L. MASON is one of the co-creators of the HOPS GRILL & BAR
restaurant concept and has served as the Company's Chairman of the Board,
President and Chief Executive Officer since its inception in 1988. In 1978, Mr.
Mason co-founded Midsouth Management Group, Inc., a Kentucky-based fast food
and casual dining restaurant company. Mr. Mason served as Chief Operating
Officer of Midsouth Management Group, Inc. from 1978 to 1988 and was responsible
for administration, operations, marketing, and construction and real estate
development activities. Midsouth Management Group Inc.'s operations included 18
franchised Wendy's Old Fashioned Hamburgers restaurants located in three states
and three Rafferty's Restaurant & Bar casual dining restaurants located in
Kentucky and Tennessee. Mr. Mason was a co-creator of the Rafferty's Restaurant
& Bar concept. From 1972 to 1975, Mr. Mason served in various restaurant
management capacities for the Steak & Ale chain of restaurants.
THOMAS A. SCHELLDORF is one of the co-creators of the HOPS GRILL & BAR
restaurant concept and has served as the Company's Executive Vice President and
Chief Operating Officer since its inception in 1988. From 1981 to 1988, Mr.
Schelldorf served as President of the Rafferty's Restaurant & Bar division of
Midsouth Management Group, Inc., where he was primarily responsible for the
construction, management and operation of three Rafferty's Restaurant & Bar
restaurants, a concept that Mr. Schelldorf co-created in 1981. From 1977 to
1981, he served as a general manager and supervisor for Houston's Restaurant
Company. From 1972 to 1977, Mr. Schelldorf held various positions, including
kitchen management and general management, in the Steak & Ale chain of
restaurants.
TERENCE M. TERENZI has been the Company's Vice President-Finance and
Chief Financial Officer, Secretary and Treasurer since March 1995. From June
1988 to March 1995, Mr. Terenzi was employed by KPMG Peat Marwick LLP, an
international public accounting firm, most recently as an audit manager. Mr.
Terenzi is a Certified Public Accountant.
TIMOTHY V. CURCI has been employed by the Company since its inception
in 1988 and has served as the Company's Vice President-Operations since November
1991. Mr. Curci is a graduate of the Culinary Institute of America.
Each of the Company's executive officers serve at the pleasure of the
Board of Directors. There are no family relationships among any of the Company's
executive officers and directors.
39
<PAGE>
Current Board members who are also executive officers of the Company do
not receive compensation for their service on the Board. While the Company has
not yet adopted a formal plan for the compensation of independent directors, it
is anticipated that future independent directors will receive reasonable
compensation and a reimbursement of the expenses associated with their service
as a director of the Company.
OUTSIDE DIRECTORS AND RELATED MATTERS
The Board of Directors expects to add two additional outside directors
within 90 days after the consummation of this offering. At that time the Board
of Directors also intends to establish an Audit Committee, a majority of the
members of which shall be outside directors.
KEY EMPLOYEES
The Company has identified William G. Holmes, John R. Oldham, John E.
Schwarzen, and Howard E. Taylor as key employees.
WILLIAM G. HOLMES, age 43, joined the Company in November 1994 as the
Company's Director of Construction. From 1984 until joining the Company, Mr.
Holmes co-owned and operated Award Construction of Tampa, Inc., a privately held
commercial and residential construction management company. From 1977 to 1984,
he served as a Vice President for Creative Properties, Inc., a Tampa-based
residential construction management company. Mr. Holmes has more than 20 years
experience in the construction management business.
JOHN R. OLDHAM, age 44, has been the Company's Director of Advertising
and Marketing since June 1996. His responsibilities include the coordination of
the Company's marketing, advertising, promotional, public relations, creative
design, and special events activities. From 1994 until joining the Company, Mr.
Oldham was a senior account executive for a regional ABC television network
affiliate in Bowling Green, Kentucky. From 1991 to 1994, he served as Director
of Advertising and Marketing for Wendy's of Bowling Green, Inc., which owned 18
franchised Wendy's Old Fashioned Hamburgers restaurants located in three states.
From 1982 to 1991, Mr. Oldham served in a similar capacity for Midsouth
Management Group, Inc.
JOHN E. SCHWARZEN, age 61, joined the Company in September 1994 as the
Company's Director of Brewing Operations. Prior to his employment with the
Company, Mr. Schwarzen held various brewery operations and management positions
during a 35-year career at Anheuser-Busch, Incorporated, where he most recently
served as a Brewing Superintendent. Mr. Schwarzen's experience includes all
aspects of brewing operations, including brewing equipment design and
installation, production management and scheduling, brewing safety and
sanitation, recipe formulation, quality control, training, and personnel
management and supervision.
HOWARD E. TAYLOR, age 49, joined the Company in September 1996 as the
Company's Director of Training. His responsibilities include the coordination
and supervision of the Company's kitchen and restaurant personnel training
activities. From 1990 until joining the Company, he was employed in various
training positions by Metromedia Steakhouses, Inc., a Dallas-based operator of
Bonanza restaurants, most recently as Vice President of Training. From 1986 to
1990, Mr. Taylor served as a Director of Training for the Dalt's Grill division
of TGI Friday's Inc. in Dallas. Mr. Taylor has more than 20 years experience in
the restaurant industry.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for services rendered during the year ended December 31, 1995, to David
L. Mason, the Company's President and Chief Executive Officer, and to Thomas A.
Schelldorf, the Company's Executive Vice President and
40
<PAGE>
Chief Operating Officer (the "Named Executive Officers"). During the year ended
December 31, 1995, there were no executive officers whose combined annual salary
and bonus exceeded $100,000, and the Company did not grant any stock options,
restricted stock awards or stock appreciation rights or make any long-term
incentive plan payouts. See"-Stock Incentive Plan."
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
---------------------------
NAME AND PRINCIPAL POSITIONS SALARY($) BONUS($)
- ---------------------------- --------- --------
<S> <C> <C>
David L. Mason, President and Chief
Executive Officer......................................... $80,000 --
Thomas A. Schelldorf, Executive Vice
President and Chief Operating Officer..................... 80,000 --
</TABLE>
Effective January 1, 1997, Messrs. Mason and Schelldorf will each begin
to receive a salary of $175,000 per year and such bonuses, if any, as may be
determined by the Board of Directors.
EMPLOYMENT AGREEMENTS
The Company is a party to employment agreements with Terence M. Terenzi
and Timothy V. Curci. The employment agreements are each for a term of five
years and become effective upon consummation of this offering. Mr. Terenzi's
employment agreement provides for him to serve as the Company's Vice
President-Finance and Chief Financial Officer, and Mr. Curci's employment
agreement provides for him to serve as the Company's Vice President-Operations.
The employment agreements provide for Messrs. Terenzi and Curci to receive
salaries of $130,000 per year. In addition, the employment agreements provide
that Messrs. Terenzi and Curci will each be eligible to receive discretionary
bonuses in amounts determined by the Board of Directors based upon the factors
deemed relevant by the Board of Directors, including the performance of the
Company. The employment agreements also impose certain confidentiality and
noncompetition restrictions on Messrs. Terenzi and Curci.
STOCK INCENTIVE PLAN
In October 1996, the Company adopted its 1996 Stock Incentive Plan (the
"1996 Plan") authorizing the grant of options to purchase shares of Common Stock
("Performance Options"), the grant of stock appreciation rights ("SARs") and the
sale or grant of restricted stock ("Performance Shares") to key employees of the
Company and its subsidiaries. There are 375,000 shares of Common Stock reserved
for issuance under the 1996 Plan. The 1996 Plan provides for the grant of both
incentive stock options intended to qualify as such under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options. The Company's Board of Directors, or a committee thereof, administers
and interprets the 1996 Plan and is authorized to grant Performance Options and
SARs and to grant or sell Performance Shares thereunder to all eligible
employees of the Company, including executive officers and directors (whether or
not employees) of the Company and its subsidiaries. Performance Options intended
to be treated as incentive stock options may only be granted, however, to
employees. Performance Options can be granted under the 1996 Plan on such terms
and at such prices as determined by the board, or a committee thereof, except
that the per share exercise price of Performance Options granted under the 1996
Plan will not be less than 50% of the fair market value of the Common Stock on
the date of grant, and, in the case of a Performance Option intended to be
treated as an incentive stock option granted to any 10% shareholder, the per
share exercise price will not be less than 110% of such fair market value as
defined in the 1996 Plan. Performance Options granted under the 1996 Plan that
would otherwise qualify as incentive stock options will not be treated as
incentive stock options to the extent that the
41
<PAGE>
aggregate fair market of the shares to which the options relate, which are
exercisable for the first time by any individual during any calendar year,
exceeds $100,000.
Performance Options granted under the 1996 Plan will be exercisable
after the period or periods specified in the option agreement evidencing their
grant. Performance Options granted under the 1996 Plan are not exercisable after
the expiration of fifteen years from the date of grant and are not transferable
other than by will or by the laws of descent and distribution. Adjustments in
the number of shares subject to Performance Options granted under the 1996 Plan
can be made by the Board of Directors or the appropriate committee in the event
of a stock dividend or recapitalization resulting in a stock split-up,
combination or exchange of shares.
As of the date of this Prospectus, there are Performance Options to
purchase an aggregate of 240,000 shares of Common Stock outstanding under the
1996 Plan. Mr. Terenzi has been granted Performance Options to purchase 112,500
shares of Common Stock with an exercise price of $5.00 per share, based upon
management's determination of the fair market value of the Company at the
commencement date of Mr. Terenzi's employment with the Company. Mr. Terenzi's
Performance Options vest over a period of three years (subject to earlier
vesting in certain circumstances). Mr. Curci has been granted Performance
Options to purchase 40,000 shares of Common Stock with an exercise price equal
to the initial public offering price per share of the shares of Common Stock
offered hereby. Mr. Curci's Performance Options vest over a period of five years
(subject to earlier vesting in certain circumstances). No SARs have been granted
and no Performance Shares have been granted or sold under the 1996 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
David L. Mason, the Company's President and Chief Executive Officer,
and Thomas A. Schelldorf, the Company's Executive Vice President and Chief
Operating Officer, participated in deliberations of the Company's Board of
Directors concerning executive officer compensation during 1995.
CERTAIN TRANSACTIONS
REORGANIZATION
The Company was incorporated in October 1996 to act as a holding
company for the business previously conducted by the Predecessor Corporations
which owned or operated various aspects of the Company's HOPS GRILL & BAR
restaurant system. Pursuant to the terms of the Exchange Agreement, the Company
and each of the shareholders of the Predecessor Corporations have agreed that on
the Exchange Date, the Company will exchange its Common Stock for all of the
outstanding common stock of each of the Predecessor Corporations. Under the
terms of the Exchange Agreement, each of the shareholders of the Predecessor
Corporations will receive, in consideration for the exchange of the outstanding
capital stock of the Predecessor Corporations, shares of the Company's Common
Stock, such that prior to the completion of this offering, the shareholders of
the Predecessor Corporations will own all of the Common Stock of the Company.
See "Reorganization and Prior S Corporation Status."
EARNINGS DISTRIBUTIONS
Since their inception, each of the Predecessor Corporations has been
treated as an S corporation for federal and state income tax purposes. As a
result, the earnings of the Predecessor Corporations have been taxed, for
federal and state income tax purposes, directly to the shareholders of the
Predecessor Corporations. Upon the completion of the Reorganization, the Company
will become responsible for the payment of federal and state income taxes on its
earnings.
42
<PAGE>
The Predecessor Corporations paid cash dividends to their shareholders
in the aggregate amounts of $365,000, $844,000, $1,424,000, and $2,191,000
representing funds available for distribution, including funds necessary to pay
federal and state income tax obligations, during the years ended December 31,
1993, 1994 and 1995, and during the nine months ended September 30, 1996,
respectively. Immediately prior to the Reorganization and in contemplation of
the terms of the New Facility, the Predecessor Corporations will distribute to
their shareholders funds which were previously restricted under the Predecessor
Corporations' prior lending arrangement (approximately $0.7 million as of
September 30, 1996). Such restricted funds would have been previously
distributed by the Predecessor Corporations in accordance with their past
practice, but for the restrictions contained in the prior lending arrangement.
See "-Reorganization."
INDEBTEDNESS AND GUARANTEES
As of September 30, 1996, the Company currently had an aggregate of
approximately $18.2 million in term loans with Trans Financial Bank, N.A.,
Bowling Green, Kentucky (the "Bank") which bear interest at the Bank's prime
rate plus 0.50% to 1.25%. The Company plans to use all of the proceeds of this
offering and to draw approximately $ million from the New Facility to
repay this indebtedness. Messrs. Mason and Schelldorf personally guaranteed the
existing loans and will be relieved of their obligations under such loans upon
consummation of this offering. Such shareholders will, however, personally
guarantee the Company's New Facility.
APPROVAL BY DISINTERESTED DIRECTORS
The foregoing transactions were entered into between related parties
and were not the result of arms-length negotiations. Accordingly, certain of the
terms of these transactions may be more or less favorable to the Company than
might have been obtained from unaffiliated third parties. The Company will not
enter into any future transactions in which the directors, executive officers or
principal shareholders of the Company and their affiliates have a material
interest unless such transactions are approved by a majority of the
disinterested members of the Board of Directors and are on terms that are no
less favorable to the Company than those that the Company could obtain from
unaffiliated third parties.
43
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus (assuming consummation of the Reorganization), and as adjusted to
reflect the sale of the shares offered by this Prospectus, by (i) each person
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each executive officer and director of the Company, and (iii) all
executive officers and directors of the Company as a group. Except as otherwise
noted, all holders listed below have sole voting power and investment power over
the shares beneficially owned by them, except to the extent such power may be
shared with such person's spouse.
<TABLE>
<CAPTION>
SHARES PERCENT OF SHARES
BENEFICIALLY BENEFICIALLY OWNED (2)
NAME AND ADDRESS(1) OWNED BEFORE OFFERING AFTER OFFERING
------------------- ------------ --------------- --------------
<S> <C> <C> <C>
David L. Mason.......................................... 735,000(3) 32.7% %
Thomas A. Schelldorf.................................... 735,000(4) 32.7% %
Mason and Schelldorf Leasing Company.................... 600,000(5) 26.7% %
Timothy V. Curci........................................ 112,500 5.0% %
Terence M. Terenzi...................................... 28,125(6) 1.2% %
All directors and officers
as a group (4 persons)............................... 2,210,625 97.0% %
</TABLE>
_____________________
(1) The mailing address of each person or entity listed below is 3030 N. Rocky
Point Drive West, Suite 650, Tampa, Florida 33607.
(2) The percentages shown include the shares of Common Stock actually owned as
of the date of this Prospectus and the shares of Common Stock which the
person or group had the right to acquire within 60 days of such date. In
calculating the percentage of ownership, all shares of Common Stock which
the identified person or group had the right to acquire within 60 days of
the date of this Prospectus upon the exercise of options are deemed to be
outstanding for the purpose of computing the percentage of the shares of
common Stock owned by such person or group, but are not deemed to be
outstanding for the purpose of computing the percentage of the shares of
Common Stock owned by any other person.
(3) Does not include 600,000 shares of Common Stock of which Mr. Mason may be
deemed to be the beneficial owner as a result of his ownership of a 50%
interest in Mason and Schelldorf Leasing Company. See Note 5.
(4) Does not include 600,000 shares of Common Stock of which Mr. Schelldorf
may be deemed to be the beneficial owner as a result of his ownership of a
50% interest in Mason and Schelldorf Leasing Company. See Note 5.
(5) A general partnership in which Mr. Mason and Mr. Schelldorf each own a 50%
general partner interest. Mr. Mason and Mr. Schelldorf each disclaims
beneficial ownership of one-half of the shares held of record by Mason and
Schelldorf Leasing Company.
(6) Consists of currently exercisable options to purchase 28,125 shares of
Common Stock held by Mr. Terenzi.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, par value $0.01 per share, and 1,000,000 shares of
Preferred Stock, par value $0.01 per share. As of the date of this Prospectus,
there were issued and outstanding 2,250,000 shares of Common Stock held of
record by five shareholders (after giving effect to the issuance of Common Stock
pursuant to the Reorganization).
The following description is qualified in its entirety by reference to
the Company's Articles of Incorporation and Bylaws, which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.
44
<PAGE>
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Cumulative
voting in the election of directors is not permitted. Subject to preferences
that may be granted to holders of Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and liquidation preference, if any, which may be granted to the
holders of Preferred Stock. Holders of Common Stock have no conversion,
preemptive or other rights to subscribe for additional shares or other
securities, and there are no redemption or sinking fund provisions with respect
to such shares. The issued and outstanding shares of Common Stock are, and the
shares offered hereby will be upon payment therefor, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock in one or more series and to fix the number of shares
constituting any such series and the rights and preferences thereof, including
dividend rates, terms of redemption (including sinking fund provisions),
redemption price or prices, voting rights, conversion rights and liquidation
preferences of the shares constituting such series, without any further vote or
action by the Company's shareholders. The issuance of Preferred Stock by the
Board of Directors could adversely affect the rights of holders of Common Stock.
For example, an issuance of Preferred Stock could result in a class of
securities outstanding that would have preferences over the Common Stock with
respect to dividends and liquidations, and that could (upon conversion or
otherwise) enjoy all of the rights appurtenant to Common Stock.
CERTAIN STATUTORY AND OTHER PROVISIONS
STATUTORY PROVISIONS. The Company is subject to certain anti-takeover
provisions under Florida law that apply to a public corporation organized under
Florida law unless the corporation has elected to opt out of such provisions in
its Articles of Incorporation or (depending on the provision in question) its
Bylaws. The Company has not elected to opt out of certain of these provisions.
The Florida Business Corporation Act (the "Florida Act") contains a provision
that prohibits the voting of shares in a publicly held Florida corporation which
are acquired in a "control share acquisition" unless the board of directors
approves the control share acquisition or the holders of a majority of the
corporation's voting shares (exclusive of shares held by officers of the
corporation, inside directors or the acquiring party) approve the granting of
voting rights as to the shares acquired in the control share acquisition. A
control share acquisition is defined as an acquisition that immediately
thereafter entitles the acquiring party to vote in the election of directors
within each of the following ranges of voting power: (i) one-fifth or more but
less than one-third of such voting power; (ii) one-third or more but less than a
majority of such voting power and (iii) a majority or more of such voting power.
This statutory voting restriction is not applicable in certain circumstances set
forth in the Florida Act.
CLASSIFIED BOARD OF DIRECTORS. Under the Company's Articles of
Incorporation and Bylaws, the Board of Directors of the Company is divided into
three classes, with staggered terms of three years each. Each year the term of
one class expires. The Company's Articles of Incorporation provide that any
vacancies on the Board of Directors shall be filled only by the affirmative vote
of a majority of the directors then in office, even if less than a quorum. The
Articles of Incorporation of the Company also provide that any director may be
removed from office, but only for cause.
SPECIAL VOTING REQUIREMENTS. The Company's Articles of Incorporation
provide that all actions taken by the shareholders must be taken at an annual or
special meeting of the shareholders or by unanimous written consent. The
Articles of Incorporation provide that special meetings of the shareholders may
be called by only a majority of the members of the board of directors, the
Chairman
45
<PAGE>
of the Board or the holders of not less than 25% of the Company's outstanding
voting shares. Under the Company's Bylaws, shareholders will be required to
comply with advance notice provisions with respect to any proposal submitted for
shareholder vote, including nominations for elections to the Board of Directors.
The Articles of Incorporation and Bylaws of the Company contain provisions
requiring the affirmative vote of the holders of at least two-thirds of the
Common Stock to amend certain provisions thereof.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The Florida Act authorizes
Florida corporations to indemnify any person who was or is a party to any
proceeding (other than an action by, or in the right of, the corporation), by
reason of the fact that he or she is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation or other
entity, against liability incurred in connection with such proceeding, including
any appeal thereof, if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or on behalf of a corporation, indemnification may not be made if the
person seeking indemnification is adjudged liable, unless the court in which
such action was brought determines such person is fairly and reasonably entitled
to indemnification. The indemnification provisions of the Florida Act require
indemnification if a director or officer has been successful on the merits or
otherwise in defense of any action, suit or proceeding to which he or she was a
party by reason of the fact that he or she is or was a director or officer of
the corporation. The indemnification authorized under Florida law is not
exclusive and is in addition to any other rights granted to officers and
directors under the Articles of Incorporation or Bylaws of the corporation or
any agreement between officers and directors and the corporation. A corporation
may purchase and maintain insurance or furnish similar protection on behalf of
any officer or director against any liability asserted against the officer or
director and incurred by the officer or director in such capacity, or arising
out of the status, as an officer or director, whether or not the corporation
would have the power to indemnify him or her against such liability under the
Florida Act.
The Company's Articles of Incorporation provide for the indemnification
of directors and executive officers of the Company to the maximum extent
permitted by Florida law and for the advancement of expenses incurred in
connection with the defense of any action, suit or proceeding that the director
or executive officer was a party to by reason of the fact that he or she is or
was a director or executive officer of the Company upon the receipt of an
undertaking to repay such amount, unless it is ultimately determined that such
person is not entitled to indemnification.
Under the Florida Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper person benefit. As a result, shareholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available.
The foregoing provisions of the Florida Act and the Company's Articles
of Incorporation and Bylaws could have the effect of preventing or delaying a
person from acquiring or seeking to acquire a substantial equity interest in, or
control of, the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta, Georgia.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have
shares of Common Stock outstanding ( shares if the Underwriters'
over-allotment option is exercised in full), assuming no stock options are
exercised. Of these shares, the shares of Common Stock sold in this
offering ( shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable by persons other than affiliates of
the Company, without restriction under the Securities Act. The remaining
2,250,000 shares of Common Stock will be "restricted securities" within the
meaning of Rule 144 under the Securities Act, and may not be sold in the absence
of registration under the Securities Act unless an exemption from registration
is available, including the exemptions contained in Rule 144. Commencing two
years after the date of the Reorganization, these 2,250,000 shares of Common
Stock will become eligible for sale in the open market, subject to volume and
other limitations imposed by Rule 144. Sales of all or a portion of such shares
could have a material adverse effect upon the price of the Common Stock.
However, the directors, executive officers and principal shareholders of the
Company have agreed not to sell, contract to sell or otherwise dispose of any of
these shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representative of the
Underwriters.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned his or her shares for at least two years (including the prior
holding period of any prior owner other than an affiliate) is entitled to sell
within any three-month period that number of shares which does not exceed the
greater of 1% of the outstanding shares of the Common Stock, or the average
weekly trading volume during the four calendar weeks preceding each such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements, and the availability of current public information about
the Company. A person (or persons whose shares are aggregated) who is not or has
not been deemed an "affiliate" of the Company for at least three months, and who
has beneficially owned shares for at least three years (including the holding
period of any prior owner other than an affiliate) would be entitled to sell
such shares under Rule 144 without regard to the limitations discussed above.
The Company has granted options to purchase an aggregate of 240,000
shares of Common Stock. The resale of the shares acquired upon exercise of these
options will be subject to the two-year holding period and the other
restrictions imposed under Rule 144 unless such shares are registered with the
Securities and Exchange Commission (the "Commission") on Form S-8 under the
Securities Act. The Company intends to file a Registration Statement on Form S-8
but has agreed with the Underwriters not to do so for at least 180 days after
the date of this Prospectus.
Prior to this offering there has been no market for the Common Stock,
and no accurate prediction can be made of the effect, if any, that market sales
of Restricted Stock or of shares subject to stock options or the availability of
these shares for sale will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of any of these
shares in the public market could adversely affect prevailing market prices for
the Common Stock.
47
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representative,
Raymond James & Associates, Inc. (the "Representative"), have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company the following respective number of shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
UNDERWRITER NUMBER OF SHARES
----------- ----------------
Raymond James & Associates, Inc...................
------------
Total.............................................
============
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters will purchase the total number of shares of Common Stock shown
above if any of such shares are purchased.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock directly to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the public offering, the public
offering price and other selling terms may be changed by the Underwriters.
The Company has granted the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
aggregate of additional shares of Common Stock at the public
offering price, less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the above table bears to the total shown,
and the Company will be obligated, pursuant to the option, to sell such shares
to the Underwriters. The Underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the shares of Common Stock
offered hereby. If purchased, the Underwriters will sell such additional shares
on the same terms as those on which the shares of Common Stock offered hereby
are being offered.
The Company has agreed to indemnify the Underwriters against, and to
contribute to losses arising out of, certain civil liabilities, including
liabilities under the Securities Act.
The Representative has informed the Company that the Underwriters do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company has agreed that it will not directly or indirectly offer,
sell or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for, or any rights to purchase
or acquire, Common Stock for a period of 180 days following the date of this
Prospectus without the prior written consent of the Representative. The
directors and executive officers of the Company have entered into a similar
agreement not to dispose of shares for a period of 180 days without the prior
written consent of the Representative.
48
<PAGE>
Prior to this offering there has been no public trading market for the
Company's securities. The public offering price of the shares of Common Stock
will be determined by negotiations among the Company and the Representative of
the Underwriters. Among the factors to be considered in such negotiations will
be prevailing market conditions, the price-earnings ratio of publicly traded
companies that the Company and the Representative of the Underwriters believe to
be comparable to the Company, the results of operations of the Company in recent
periods, estimates of the business potential of the Company, the present state
of the Company's development, and other factors deemed to be relevant. The
Company has applied for the Common Stock to be approved for quotation subject to
official notice of issuance on the Nasdaq National Market under the symbol HOPS.
Following the offering, the Representative of the Underwriters intends to serve
as a market maker for the Company's Common Stock.
The foregoing includes a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the Underwriting Agreement which is on file as an exhibit to the
Registration Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Fowler, White, Gillen, Boggs, Villareal and
Banker, P.A., Tampa, Florida. Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., Miami, Florida is acting as counsel for the Underwriters in
connection with certain legal matters relating to the shares of Common Stock
offered hereby.
EXPERTS
The combined financial statements of the Predecessor Corporations, as
of December 31, 1994 and 1995, and for each of the years in the three-year
period ended December 31, 1995, and the balance sheet of Hops Grill & Bar, Inc.
as of October 1, 1996, included herein and elsewhere in the Registration
Statement have been included herein and in the Registration Statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of that firm as
experts in accounting and auditing.
49
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Commission under the Securities Act in
respect of the Common Stock offered hereby. For purposes of this Prospectus, the
term "Registration Statement" means the initial Registration Statement and any
and all amendments thereto. This Prospectus omits certain information contained
in the Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto. Statements herein concerning the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to such contract or other document filed with the Commission as an
exhibit to the Registration Statement, or otherwise, each such statement, being
qualified by and subject to such reference in all respects.
As a result of this offering, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith will
file reports, proxy and information statements, and other information with the
Commission. Reports, registration statements, proxy and information statements,
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at its regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of these material may be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. The Commission maintains a site on the World Wide Web
(http://www.sec.gov) that contains reports, registration statements, proxy and
information statements, and other information.
50
<PAGE>
Index to Financial Statements
PAGE
----
HOPS GRILL & BAR, INC.:
Independent Auditors' Report F-2
Balance Sheet as of October 1, 1996 F-3
PREDECESSOR CORPORATIONS:
Independent Auditors' Report F-4
Combined Balance Sheets as of December 31, 1994 and 1995
and September 30, 1996 F-5
Combined Statements of Earnings for the
Years Ended December 31, 1993, 1994 and 1995 and
the Nine Months Ended September 30, 1996 F-6
Combined Statements of Shareholders' Equity for the
Years Ended December 31, 1993, 1994 and 1995 and
the Nine Months Ended September 30, 1996 F-7
Combined Statements of Cash Flows for the
Years Ended December 31, 1993, 1994 and 1995 and
the Nine Months Ended September 30, 1996 F-8
Notes to Combined Financial Statements F-9
HOPS GRILL & BAR, INC.:
Unaudited Pro Forma Consolidated Financial Information F-16
Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1996 F-17
Unaudited Pro Forma Consolidated Statement of
Earnings for the Nine Months Ended September 30, 1996 F-18
Unaudited Pro Forma Consolidated Statement of
Earnings for the Year Ended December 31, 1995 F-19
Unaudited Pro Forma Consolidated Statement of
Earnings for the Year Ended December 31, 1994 F-20
Unaudited Pro Forma Consolidated Statement of
Earnings for the Year Ended December 31, 1993 F-21
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders of Hops Grill & Bar, Inc.
We have audited the accompanying balance sheet of Hops Grill & Bar, Inc. as of
October 1, 1996. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on the balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Hops Grill & Bar, Inc. as of
October 1, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
-------------------------
Tampa, Florida
October 10, 1996
F-2
<PAGE>
HOPS GRILL & BAR, INC.
Balance Sheet
October 1, 1996
ASSETS
Cash $ -
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholers' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding $ -
Common stock, $0.01 par value; 25,000,000 shares
authorized; no shares issued or outstanding -
-------
$ -
=======
Note:
1. Hops Grill & Bar, Inc. incorporated on October 1, 1996, is organizing an
initial public offering and will act as a holding company for the
Predecessor Corporations. Pursuant to an agreement (the "Share Exchange
Agreement"), which will be enetered into prior to the effectiveness of the
public offering, Hops Grill & Bar, Inc. will issue its common stock in
exchange for all of the outstanding common stock of the Predecessor
Corporations, and each shareholder of the Predecessor Corporations will
receive shares of common stock of Hops Grill & Bar, Inc. The combination
will be accounted for using the pooling-of-interests method in accordance
with APB 16. Upon this combination, the consolidated financial statements of
Hops Grill & Bar, Inc. will consist of the combined financial statements of
the Predecessor Corporations, except for the changes in shareholders' equity
to reflect the share exchange.
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders of the Predecessor Corporations:
We have audited the accompanying combined balance sheets of the Predecessor
Corporations (the entities defined in note 1) as of December 31, 1994 and 1995,
and the related combined statements of earnings, shareholders' equity and cash
flows for the years ended December 31, 1993, 1994 and 1995. These financial
statements are the responsibility of management of the Predecessor Corporations.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Predecessor
Corporations as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1993, 1994 and
1995, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
-------------------------
Tampa, Florida
October 2, 1996
F-4
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR CORPORATIONS
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
AND SEPTEMBER 30, 1996 (UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
ASSETS 1994 1995 1996
----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,272,000 1,497,000 523,000
Restricted trading securities 197,000 131,000 172,000
Accounts receivable 12,000 61,000 149,000
Preopening costs, net 98,000 263,000 508,000
Inventories 183,000 408,000 654,000
Other current assets 120,000 103,000 103,000
----------- ---------- ----------
Total current assets 1,882,000 2,463,000 2,109,000
Property and equipment, net
(note 2) 10,991,000 18,455,000 24,147,000
Other assets 368,000 828,000 1,102,000
----------- ---------- ----------
$13,241,000 21,746,000 27,358,000
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,051,000 1,603,000 1,827,000
Sales taxes payable 89,000 137,000 159,000
Accrued payroll and payroll taxes 369,000 551,000 482,000
Other accrued expenses 410,000 824,000 708,000
Current portion of long-term debt(note 3) 597,000 692,000 2,550,000
----------- ---------- ----------
Total current liabilities 2,516,000 3,807,000 5,726,000
Deferred rent 186,000 187,000 194,000
Long-term debt (note 3) 7,969,000 11,737,000 15,618,000
Other long-term liabilities -- 100,000 103,000
Interest of minority partners 54,000 1,805,000 2,044,000
----------- ---------- ----------
Total liabilities 10,725,000 17,636,000 23,685,000
----------- ---------- ----------
Shareholders' equity:
Common stock -- -- --
Additional paid-in capital 2,183,000 4,110,000 3,673,000
Retained earnings 333,000 -- --
----------- ---------- ----------
Total shareholders' equity 2,516,000 4,110,000 3,673,000
Commitments and contingencies
----------- ---------- ----------
$13,241,000 21,746,000 27,358,000
=========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR CORPORATIONS
COMBINED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
AND NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales $ 12,120,000 20,189,000 28,314,000 31,358,000
Restaurant operating expenses:
Cost of sales 3,822,000 6,600,000 9,070,000 10,312,000
Labor and other related expenses 3,404,000 5,792,000 8,147,000 8,975,000
Other restaurant operating expenses 2,762,000 4,569,000 6,811,000 6,351,000
Depreciation and amortization 286,000 800,000 1,242,000 1,559,000
------------ ----------- ----------- -----------
Total restaurant operating
expenses 10,274,000 17,761,000 25,270,000 27,197,000
------------ ----------- ----------- -----------
Income from restaurant
operations 1,846,000 2,428,000 3,044,000 4,161,000
General and administrative expenses 634,000 1,544,000 2,036,000 1,285,000
------------ ----------- ----------- -----------
Operating income 1,212,000 884,000 1,008,000 2,876,000
------------ ----------- ----------- -----------
Interest expense, net (158,000) (506,000) (939,000) (993,000)
Other income (loss) 18,000 (71,000) (25,000) (140,000)
------------ ----------- ----------- -----------
Net income before elimination of
minority partners' interest 1,072,000 307,000 44,000 1,743,000
Elimination of minority
partners' interest -- 6,000 43,000 127,000
------------ ----------- ----------- -----------
Net income $ 1,072,000 301,000 1,000 1,616,000
============ =========== =========== ===========
Unaudited pro forma adjustment to
reflect income taxes $ 407,000 114,000 -- 614,000
============ =========== =========== ===========
Unaudited pro forma net income $ 665,000 187,000 1,000 1,002,000
============ =========== =========== ===========
Unaudited pro forma net income
per share $ .30 .08 -- .45
============ =========== =========== ===========
Unaudited pro forma
shares outstanding 2,250,000 2,250,000 2,250,000 2,250,000
============ =========== =========== ===========
See accompanying notes to combined financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR CORPORATIONS
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1992 $ -- 76,000 169,000 245,000
Issuance of common stock -- 21,000 -- 21,000
Net income -- -- 1,072,000 1,072,000
Dividends and distributions -- -- (365,000) (365,000)
------- ---------- ---------- ----------
Balances, December 31, 1993 -- 97,000 876,000 973,000
Issuance of common stock -- 40,000 -- 40,000
Contributions -- 2,046,000 -- 2,046,000
Net income -- -- 301,000 301,000
Dividends and distributions -- -- (844,000) (844,000)
------- ---------- ---------- ----------
Balances, December 31, 1994 -- 2,183,000 333,000 2,516,000
Issuance of common stock -- 10,000 -- 10,000
Contributions -- 3,007,000 -- 3,007,000
Net income -- -- 1,000 1,000
Dividends and distributions -- (1,090,000) (334,000) (1,424,000)
------- ---------- ---------- ----------
Balances, December 31, 1995 -- 4,110,000 -- 4,110,000
Contributions (Unaudited) -- 138,000 -- 138,000
Net income (Unaudited) -- -- 1,616,000 1,616,000
Dividends and distributions
(Unaudited) -- (575,000) (1,616,000) (2,191,000)
------- ---------- ---------- ----------
Balances, September 30, 1996
(Unaudited) $ -- 3,673,000 -- 3,673,000
======= ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR CORPORATIONS
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------------- ---------- ---------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,072,000 301,000 1,000 1,616,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 286,000 800,000 1,273,000 1,590,000
Loss on disposal of fixed assets -- -- 60,000 92,000
Minority interest income -- 6,000 43,000 127,000
(Increase) decrease in accounts receivable 6,000 (10,000) (49,000) (88,000)
Increase in inventories (66,000) (9,000) (225,000) (246,000)
Increase in other current assets and other assets (47,000) (296,000) (443,000) (274,000)
Increase in preopening costs (103,000) (258,000) (588,000) (873,000)
Increase in accounts payable 319,000 392,000 552,000 224,000
Increase (decrease) in accrued expenses
and other liabilities 244,000 394,000 745,000 (153,000)
Sale (purchases) of trading securities, net (114,000) 75,000 66,000 (41,000)
----------- ---------- ---------- ----------
Net cash provided by operating activities 1,597,000 1,395,000 1,435,000 1,974,000
----------- ---------- ---------- ----------
Cash flows from investing activities:
Additions to property and equipment (3,223,000) (6,849,000) (8,374,000) (6,746,000)
Proceeds from sale of property and equipment -- 73,000 -- --
----------- ---------- ---------- ----------
Net cash used in investing activities (3,223,000) (6,776,000) (8,374,000) (6,746,000)
----------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 3,078,000 4,899,000 7,224,000 6,259,000
Repayments of long-term debt (503,000) (692,000) (3,361,000) (520,000)
Capital contributions and issuance of common stock 21,000 2,086,000 3,017,000 138,000
Proceeds from minority partners contributions -- 48,000 1,961,000 481,000
Dividends to shareholders and minority partners (365,000) (844,000) (1,677,000) (2,560,000)
----------- ---------- ---------- ----------
Net cash provided by financing activities 2,231,000 5,497,000 7,164,000 3,798,000
----------- ---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 605,000 116,000 225,000 (974,000)
Cash and cash equivalents, beginning of year 551,000 1,156,000 1,272,000 1,497,000
----------- ---------- ---------- ----------
Cash, and cash equivalents, end of year $ 1,156,000 1,272,000 1,497,000 523,000
=========== ========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 186,000 543,000 957,000 1,016,000
=========== ========== ========== ==========
Interest capitalized $ 59,000 130,000 84,000 61,000
=========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-8
<PAGE>
PREDECESSOR CORPORATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PURPOSE AND ORGANIZATION
The combined financial statements presented herein include the accounts
of the following corporations (the "Predecessor Corporations"):
<TABLE>
<CAPTION>
<S> <C> <C>
Hops Grill & Brewery, Inc. Hops of St. Petersburg, Inc.
Hops of Carrollwood, Inc. Hops of Greater West Palm Beach, Inc.
Hops of South Tampa, Inc. Hops of the Ohio Valley, Inc.
Hops of North Tampa, Inc. Hops Partners, Inc.
Hops of Southwest Florida, Inc. Partners II, Inc.
Hops of Southeast Florida, Inc. Hops Partners III, Inc.
Hops of Northeast Florida, Inc. Hops Marketing, Inc.
Hops of Greater Orlando, Inc. Toomy LCN, Inc.
Hops of the Rockies, Inc. Hops Restaurants, Inc.
Cypress Coast Construction Corporation Hops of Port Richey, Inc.
Hops of Palm Harbor, Inc.
</TABLE>
The combined financial statements also include certain assets and
liabilities of Mason and Schelldorf Leasing Company related to land and
brewery equipment. The assets are included in the combined financial
statements as if the Predecessor Corporations had owned them from their
inception.
All significant intercompany accounts have been eliminated in
combination.
The Predecessor Corporations own and operate various aspects of the
"Hops Grill & Bar" restaurant system. As of September 30, 1996, the
restaurant system included eighteen full service, casual dining
restaurants, each of which features an on premise microbrewery. Fourteen
of the restaurants are owned and operated by the Predecessor
Corporations, and four are owned and operated by two joint ventures
which are controlled by the Predecessor Corporations.
Hops Grill & Bar, Inc., incorporated in October 1996, is organizing an
initial public offering and will act as a holding company for the
Predecessor Corporations. Pursuant to an agreement (the "Share Exchange
Agreement"), which will be entered into prior to the effectiveness of
the public offering, Hops Grill & Bar, Inc. will issue its common stock
in exchange for all of the outstanding common stock of the Predecessor
Corporations, and each shareholder of the Predecessor Corporations will
receive shares of common stock of Hops Grill & Bar, Inc. The combination
will be accounted for using the pooling-of-interests method in
accordance with APB 16. Upon this combination, the consolidated
financial statements of Hops Grill & Bar, Inc. will consist of the
combined financial statements of the Predecessor Corporations except for
the changes in shareholders' equity to reflect the share exchange.
(Continued)
F-9
<PAGE>
PREDECESSOR CORPORATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(B) CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of
less than three months are considered to be cash equivalents. Cash and
cash equivalents include restricted cash in money market accounts.
In connection with the existing lending arrangment, certain restaurants
are required to make monthly deposits into a money market account held
by the lender. These funds are restricted and cannot be released
without the approval of the lender. Restricted cash was approximately
$1,013,000, $1,087,000, and $1,371,000 in 1994, 1995, and 1996,
respectively.
(C) RESTRICTED TRADING SECURITIES
Restricted trading securities are accounted for under Statement of
Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under this statement, trading
securities are carried at current market value with an offsetting
adjustment to earnings. In connection with existing lending
arrangements, these securities are restricted and cannot be released
without the approval of the lender.
(D) INVENTORIES
Inventories consist of food and beverages, and are stated at the lower
of cost ("first-in, first-out") or market.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided on a straight-line basis over the estimated useful lives of
the related assets, which range from 5 to 25 years.
(F) CONSTRUCTION IN PROGRESS
All direct costs incurred in the construction of restaurants are
capitalized. Upon opening, these costs are amortized and charged to
expense, based upon their classification as equipment or leasehold
improvements. Any interest expense incurred during construction is
capitalized.
(Continued)
F-10
<PAGE>
PREDECESSOR CORPORATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(G) PREOPENING COSTS
Direct incremental costs incurred prior to the opening of new
restaurants are capitalized and amortized over a period of twelve
months. These costs consist primarily of labor costs, costs associated
with hiring and training personnel, and certain other initial opening
expenses. Amortization expense was approximately $37,000, $260,000 and
$418,000 in 1993, 1994 and 1995, respectively, and approximately
$629,000 for the nine months ended September 30, 1996.
(H) INCOME TAXES
Profits or losses of the S-Corporations combined in these financial
statements are reflected in the individual tax returns of the
shareholders. Distributions to shareholders are, at a minimum, declared
each year in an estimated amount necessary to cover income taxes
incurred by the individual shareholders on taxable profits of the S-
Corporations.
The minority partners' interest includes no provision or liability for
income taxes, as such interest and any tax liability related thereto is
the responsibility of the individual minority partners.
As described in note 1(a), Hops Grill & Bar, Inc. is organizing an
initial public offering of common stock, which if completed, will change
the income tax status of the Predecessor Corporations and the
Predecessor Corporations will no longer be eligible for S-Corporation
status. At that time, Hops Grill & Bar, Inc. will adopt Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES
("Statement 109"). Statement 109 requires the use of the asset and
liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred income taxes are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases.
If the Predecessor Corporations' S-Corporation status terminated on
September 30, 1996, the net deferred tax liability would be
approximately $200,000 (unaudited).
The unaudited pro forma adjustment to reflect income taxes included in
the accompanying combined statement of earnings is for informational
purposes only, and has been calculated at the approximate combined
federal and state statutory rate of 38%.
(Continued)
F-11
<PAGE>
PREDECESSOR CORPORATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(I) UNAUDITED PRO FORMA NET INCOME PER SHARE
Unaudited pro forma net income per share is calculated assuming that the
2,250,000 shares of Hops Grill & Bar, Inc.'s common stock to be
outstanding upon consummation of the Share Exchange described in note l
(a) were outstanding at the beginning of each year presented.
(J) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
(K) NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS No. 121), which becomes effective for financial
statements for fiscal years beginning after December 15, 1995. The
statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangible assets and goodwill
related to those assets to be held and used, and for long-lived assets
and certain identifiable intangible assets to be disposed of. The
Predecessor Corporations have adopted SFAS No. 121 and as of January 1,
1996 and September 30, 1996, there is no material impact to the
financial position or results of operations of the Predecessor
Corporations.
In October 1995, the FASB issued Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS No.
123), which becomes effective for financial statements for fiscal years
beginning after December 15, 1995. SFAS No. 123 defines a fair value
based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However,
it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25). The Predecessor Corporations
currently account for stock-based compensation under APB 25 and will
continue to account for stock-based compensation under this method.
(Continued)
F-12
<PAGE>
PREDECESSOR CORPORATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Land $ 2,979,000 4,994,000 5,113,000
Buildings and leasehold improvements 4,658,000 8,417,000 12,831,000
Brewery equipment 1,222,000 1,749,000 2,625,000
Other restaurant equipment 2,687,000 4,222,000 6,051,000
Construction in progress 578,000 1,009,000 387,000
------------ ----------- -----------
12,124,000 20,391,000 27,007,000
Less accumulated depreciation (1,133,000) (1,936,000) (2,860,000)
------------ ----------- -----------
$ 10,991,000 18,455,000 24,147,000
============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
(3) LONG-TERM DEBT
Long-term debt consists of the following:
Notes payable to bank, interest at prime
plus .50% to 1.25% (9.0% to 9.75% at
December 31, 1994 and 1995, and 8.75%
to 9.5% at September 30, 1996); principal and
interest due monthly, maturing December
1996 through May 2011, collateralized
by buildings, improvements, equipment,
and personally guaranteed by certain
shareholders $ 8,566,000 12,429,000 18,168,000
Less current installments (597,000) (692,000) (2,550,000)
----------- ---------- ----------
Long-term debt, less current
installments $ 7,969,000 11,737,000 15,618,000
=========== ========== ==========
(Continued)
F-13
<PAGE>
PREDECESSOR CORPORATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
</TABLE>
Aggregate maturities of long-term debt at September 30, 1996 are as
follows for the period ended December 31:
1996 $ 1,700,000
1997 1,215,000
1998 1,265,000
1999 1,270,000
2000 1,290,000
Thereafter 11,428,000
-----------
$ 18,168,000
===========
As described in note 1(c), there are certain restrictions on cash and
investments within the current lending agreement.
Upon completion of the initial public offering as discussed in note l(a),
Hops Grill & Bar, Inc. will enter into a new $20,000,000 credit facility
(the "New Facility") with its existing lender. The New Facility will bear
interest at the prime rate, or at the Company's option, at LIBOR plus 2.5%,
and will mature two years from the closing of the loan.
The credit agreement will contain customary representations, warranties and
covenants, as well as prohibitions against any other indebtedness without
the consent of the lender, except for normal trade credit and liabilities,
minor equipment leases, and a prohibition of the payment of dividends. The
New Facility will be secured by a pledge of all of the outstanding common
stock of the Predecessor Corporations, and will be guaranteed by certain
shareholders. In connection with the New Facility, previous restrictions on
cash and investments will terminate.
(4) COMMITMENTS
Restaurant properties, office facilities, and certain equipment are leased
under operating leases, most of which contain renewal options. Total rental
expense was approximately $358,000, $558,000 and $813,000 for the years
ended December 31, 1993, 1994 and 1995, respectively, and $764,000 for the
nine months ended September 30, 1996.
(Continued)
F-14
<PAGE>
PREDECESSOR CORPORATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
Future minimum lease payments under noncancelable operating leases as of
December 31 are as follows:
1996 $ 955,000
1997 1,005,000
1998 955,000
1999 825,000
2000 685,000
Thereafter 2,555,000
----------
Total minimum lease payments $ 6,980,000
==========
As a part of his initial employment by the Predecessor Corporations, the
Predecessor Corporations agreed to grant to an executive officer options to
purchase up to five percent of the holding company (now identified as Hops
Grill & Bar, Inc.) to be formed for the Predecessor Corporations based upon
the fair market value of the Predecessor Corporations at the time of his
employment in March 1995. Subsequent to the date of these financial
statements, the Predecessor Corporations will fulfill this contractual
obligation upon completion of the reorganization by the issuance of options
to purchase 112,500 shares of the Common Stock of the holding company for
the Predecessor Corporations (Hops Grill & Bar, Inc.) to such executive
officer with an exercise price of $5.00 per share. No compensation expense
will be recognized because the exercise price for the options represents the
fair market value of the underlying stock as of the grant date (March 1995).
These options vest 25% immediately, and subject to certain events of
acceleration, 25% on each anniversary of such grant over the next 3 years.
(5) RELATED PARTY TRANSACTIONS
At September 30, 1996, accounts receivable included $99,000 due from
shareholders.
(6) COMMON STOCK
At September 30, 1996, the Predecessor Corporations had in total 321,100
shares authorized and 3,211 shares issued and outstanding. The par value of
the common stock varies among the Predecessor Corporations and is either
$.25 par value, $.0l par value, or no par value.
F-15
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet as of September 30,
1996 has been prepared using the audited historical financial statements of Hops
Grill & Bar, Inc. and the unaudited historical financial statements of the
Predecessor Corporations. The following unaudited pro forma consolidated
statements of earnings for the years ended December 31, 1993, 1994 and 1995 have
been prepared using the audited historical financial statements of Hops Grill &
Bar, Inc. and the audited historical financial statements of the Predecessor
Corporations. The unaudited pro forma consolidated statement of earnings for the
nine months ended September 30, 1996 has been prepared using the audited
financial statements of Hops Grill & Bar, Inc. and the unaudited historical
financial statements of the Predecessor Corporations.
The unaudited pro forma consolidated balance sheet reflects (i) the combination
of Hops Grill & Bar, Inc. and the Predecessor Corporations using the
pooling-of-interests method in accordance with APB No. 16; (ii) a planned
distribution to the shareholders of the Predecessor Corporations and (iii) the
impact of implementing Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES.
The unaudited pro forma consolidated statements of earnings reflect (i) the
combination of Hops Grill & Bar, Inc. and the Predecessor Corporations using the
pooling-of-interests method in accordance with APB No. 16 and (ii) the effect on
earnings as if the Company had been treated as a C Corporation rather than an S-
Corporation for federal and state income tax purposes.
The unaudited pro forma consolidated balance sheet and the unaudited pro forma
consolidated statements of earnings should be read in conjunction with the
historical financial statements and related notes of Hops Grill & Bar, Inc. and
the Predecessor Corporations included elsewhere in this prospectus.
F-16
<PAGE>
<TABLE>
<CAPTION>
HOPS GRILL & BAR, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
HOPS
HOPS THE GRILL &
GRILL & PREDECESSOR PRO FORMA BAR, INC.
ASSETS BAR, INC. CORPORATIONS ADJUSTMENTS PRO FORMA
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ -- 523,000 (523,000)(2) --
Restricted trading securities -- 172,000 (172,000)(2) --
Accounts receivable -- 149,000 -- 149,000
Preopening costs, net -- 508,000 -- 508,000
Inventories -- 654,000 -- 654,000
Other current assets -- 103,000 -- 103,000
----------- ----------- ----------- ----------
Total current assets -- 2,109,000 (695,000) 1,414,000
Property and equipment, net -- 24,147,000 -- 24,147,000
Other assets -- 1,102,000 -- 1,102,000
----------- ----------- ----------- ----------
$ -- 27,358,000 (695,000) 26,663,000
=========== =========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- 1,827,000 -- 1,827,000
Sales taxes payable -- 159,000 -- 159,000
Accrued payroll and payroll taxes -- 482,000 -- 482,000
Other accrued expenses -- 708,000 -- 708,000
Current portion of long-term debt -- 2,550,000 -- 2,550,000
----------- ----------- ---------- -----------
Total current liabilities -- 5,726,000 -- 5,726,000
Deterred rent -- 194,000 -- 194,000
Long-term debt -- 15,618,000 -- 15,618,000
Other long-term liabilities -- 103,000 200,000(3) 303,000
Interest of minority partners -- 2,044,000 -- 2,044,000
----------- ----------- ---------- -----------
Total liabilities -- 23,685,000 200,000 23,885,000
----------- ----------- ---------- -----------
Shareholders' equity:
Common stock -- -- 23,000 (1) 23,000
Additional paid-in capital -- 3,673,000 (695,000)(2) 2,955,000
(23,000)(1) --
Retained earnings -- -- -- (2) (200,000)
(200,000)(3)
----------- ----------- ---------- -----------
Total shareholders' equity -- 3,673,000 (895,000) 2,778,000
Commitments and contingencies
----------- ----------- ---------- -----------
$ -- $27,358,000 (695,000) 26,663,000
=========== =========== ========== ===========
<FN>
Notes:
(1) To reflect the share exchange between Hops Grill & Bar, Inc. and the
Predecessor Corporations, pursuant to which Hops Grill & Bar, Inc. issued
2,250,000 shares of its common stock, par value $.01 per share.
(2) To reflect the planned distribution to shareholders.
(3) To reflect the impact of implementing Statement 109 due to the anticipated
change in tax status.
</FN>
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
HOPS GRILL & BAR, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1996
HOPS
HOPS THE GRILL &
GRILL & PREDECESSOR PRO FORMA BAR, INC.
BAR, INC. CORPORATIONS ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Sales $ 31,358,000 31,358,000
Restaurant operating expenses:
Cost of sales 10,312,000 10,312,000
Labor and other related expenses 8,975,000 8,975,000
Other restaurant operating expenses 6,351,000 6,351,000
Depreciation and amortization 1,559,000 1,559,000
---------- ---------- ---------- ----------
Total restaurant operating expenses 27,197,000 27,197,000
---------- ---------- ---------- ----------
Income from restaurant operations 4,161,000 4,161,000
General and administrative expenses 1,285,000 1,285,000
---------- ---------- ---------- ----------
Operating income 2,876,000 2,876,000
---------- ---------- ---------- ----------
Interest expense, net (993,000) (993,000)
Other income (loss) (140,000) (140,000)
---------- ---------- ---------- ----------
Net income before elimination
of minority partners' interest 1,743,000 1,743,000
Elimination of minority partners'
interest 127,000 127,000
---------- ---------- ---------- ----------
Net income $ 1,616,000 1,616,000
========== ========== ========== ==========
Unaudited pro forma adjustment to
reflect income taxes $ 614,000(1) 614,000
========== ===========
Unaudited pro forma net income $ 1,002,000
===========
Unaudited pro forma net income per share $ .45
===========
Unaudited pro forma shares outstanding 2,250,000
===========
<FN>
Note:
(1) Reflects the effect on earnings assuming the Company had been treated as a C
Corporation rather than a S Corporation for federal and state income tax
purposes, and assuming that the combined federal and state income tax rates
approximate 38.0%.
</FN>
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
HOPS GRILL & BAR, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
HOPS
HOPS THE GRILL &
GRILL & PREDECESSOR PRO FORMA BAR, INC.
BAR, INC. CORPORATIONS ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Sales $ 28,314,000 28,314,000
Restaurant operating expenses:
Cost of sales 9,070,000 9,070,000
Labor and other related expenses 8,147,000 8,147,000
Other restaurant operating expenses 6,811,000 6,811,000
Depreciation and amortization 1,242,000 1,242,000
---------- ---------- ---------- ----------
Total restaurant operating expenses 25,270,000 25,270,000
---------- ---------- ---------- ----------
Income from restaurant operations 3,044,000 3,044,000
General and administrative expenses 2,036,000 2,036,000
---------- ---------- ---------- ----------
Operating income 1,008,000 1,008,000
---------- ---------- ---------- ----------
Interest expense, net (939,000) (939,000)
Other income (loss) (25,000) (25,000)
---------- ---------- ---------- ----------
Net income before elimination
of minority partners' interest 44,000 44,000
Elimination of minority partners' interest 43,000 43,000
---------- ---------- ---------- ----------
Net income $ 1,000 1,000
========== ========== ========== ==========
Unaudited pro forma adjustment to
reflect income taxes $ -- (1)
========== ==========
Unaudited pro forma net income $ 1,000
==========
Unaudited pro forma net income per share $ --
==========
Unaudited pro forma shares outstanding 2,250,000
==========
<FN>
Note:
(1) Reflects the effect on earnings assuming the Company had been treated as a C
Corporation rather than a S Corporation for federal and state income tax
purposes, and assuming that the combined federal and state income tax rates
approximate 38.0%.
</FN>
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
HOPS GRILL & BAR, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
HOPS
HOPS THE GRILL &
GRILL & PREDECESSOR PRO FORMA BAR, INC.
BAR, INC. CORPORATIONS ADJUSTMENTS PRO FORMA
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 20,189,000 20,189,000
Restaurant operating expenses:
Cost of sales 6,600,000 6,600,000
Labor and other related expenses 5,792,000 5,792,000
Other restaurant operating expenses 4,569,000 4,569,000
Depreciation and amortization 800,000 800,000
---------- ---------- ---------- ----------
Total restaurant operating expenses 17,761,000 17,761,000
---------- ---------- ---------- ----------
Income from restaurant operations 2,428,000 2,428,000
General and administrative expenses 1,544,000 1,544,000
---------- ---------- ---------- ----------
Operating income 884,000 884,000
---------- ---------- ---------- ----------
Interest expense, net (506,000) (506,000)
Other income (loss) (71,000) (71,000)
---------- ---------- ---------- ----------
Net income before elimination
of minority partners' interest 307,000 307,000
Elimination of minority partners' interest 6,000 6,000
---------- ---------- ---------- ----------
Net income $ 301,000 301,000
========== ========== ========== ==========
Unaudited pro forma adjustment to
reflect income taxes $114,000(1) 114,000
======== ==========
Unaudited pro forma net income $ 187,000
==========
Unaudited pro forma net income per share $ .08
==========
Unaudited pro forma shares outstanding 2,250,000
==========
<FN>
Note:
(1) Reflects the effect on earnings assuming the Company had been treated as a C
Corporation rather than a S Corporation for federal and state income tax
purposes, and assuming that the combined federal and state income tax rates
approximate 38.0%.
</FN>
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
HOPS GRILL & BAR, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1993
HOPS
HOPS THE GRILL &
GRILL & PREDECESSOR PRO FORMA BAR, INC.
BAR, INC. CORPORATIONS ADJUSTMENTS PRO FORMA
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 12,120,000 12,120,000
Restaurant operating expenses:
Cost of sales 3,822,000 3,822,000
Labor and other related expenses 3,404,000 3,404,000
Other restaurant operating expenses 2,762,000 2,762,000
Depreciation and amortization 286,000 286,000
---------- ---------- ---------- ----------
Total restaurant operating expenses 10,274,000 10,274,000
---------- ---------- ---------- ----------
Income from restaurant operations 1,846,000 1,846,000
General and administrative expenses 634,000 634,000
---------- ---------- ---------- ----------
Operating income 1,212,000 1,212,000
---------- ---------- ---------- ----------
Interest expense, net (158,000) (158,000)
Other income (loss) 18,000 18,000
---------- ---------- ---------- ----------
Net income before elimination
of minority partners' interest 1,072,000 1,072,000
Elimination of minority partners' interest -- --
---------- ---------- ---------- ----------
Net income $ 1,072,000 1,072,000
========== ========== ========== ==========
Unaudited pro forma adjustment to
reflect income taxes $ 407,000(1) 407,000
========== ==========
Unaudited pro forma net income $ 665,000
==========
Unaudited pro forma net income per share $ .30
==========
Unaudited pro forma shares outstanding 2,250,000
==========
<FN>
Note:
(1) Reflects the effect on earnings assuming the Company had been treated as a C
Corporation rather than a S Corporation for federal and state income tax
purposes, and assuming that the combined federal and state income tax rates
approximate 38.0%.
</FN>
</TABLE>
F-21
<PAGE>
[A photograph of four of the Company's employees, one
of whom is holding a plate with a slab of baby back
ribs, french fries, and cole slaw, together with the
text "A Commitment To Quality & Excellence" and "TEAM
HOPS", appears here.]
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY
ANY SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN
OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE
HEREOF.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ...................................................... 2
The Company ............................................................. 4
Reorganization and Prior
S Corporation Status .................................................. 4
Risk Factors ............................................................ 5
Use of Proceeds ......................................................... 11
Dilution ................................................................ 12
Capitalization .......................................................... 13
Dividend Policy ......................................................... 14
Selected Financial Data ................................................. 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ......................................................... 16
Business ................................................................ 26
Management .............................................................. 39
Certain Transactions .................................................... 42
Principal Shareholders .................................................. 44
Description of Securities ............................................... 44
Shares Eligible for Future Sale ......................................... 47
Underwriting ............................................................ 48
Legal Matters ........................................................... 49
Experts ................................................................. 49
Available Information ................................................... 50
Index to Financial Statements ........................................... F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
SHARES
[LOGO]
HOPS GRILL & BAR, INC.
COMMON STOCK
----------
PROSPECTUS
----------
RAYMOND JAMES & ASSOCIATES, INC.
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
of the sale of the shares of Common Stock are as follows:
SEC registration fee................................ $ 6,000
NASD filing fee..................................... 2,500
Nasdaq National Market listing fee.................. 30,000
Legal fees and expenses............................. 150,000
Blue Sky fees and expenses.......................... 15,000
Accounting fees and expenses........................ 50,000
Printing and engraving expenses..................... 75,000
Transfer agent and registrar fees................... 15,000
Miscellaneous fees and expenses..................... 56,500
--------
Total........................................ $ 400,000
========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Florida Act") permits a
Florida corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances.
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify directors and executive officers to the fullest
extent now or hereafter permitted by the Florida Act. In addition, the
Registrant may enter into Indemnification Agreements with its directors and
executive officers pursuant to which the Registrant may agree to indemnify such
persons to the fullest extent now or hereafter permitted by the Florida Act.
The indemnification provided by the Florida Business Corporation Act
and the Registrant's Bylaws is not exclusive of any other rights to which a
director or officer may be entitled. The general effect of the foregoing
provisions may be to reduce the circumstances which an officer or director may
be required to bear the economic burden of the foregoing liabilities and
expense.
The Registrant may obtain a liability insurance policy for its
directors and officers as permitted by the Florida Act which may extend to,
among other things, liability arising under the Securities Act of 1933, as
amended (the "Securities Act").
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant was incorporated under the laws of the State of Florida
effective October 1, 1996. Immediately prior to the completion of this offering,
the Registrant will issue an aggregate of 2,250,000 shares of Common Stock to
five persons pursuant to the Exchange Agreement in exchange for all of the
issued and outstanding common stock of the Predecessor Corporations. No
commissions or discounts will be paid or given in connection with this
transaction. Such shares of the Registrant's Common Stock will be issued in
accordance with the exemption provided by Section 4(2) of the Securities Act, as
a transaction not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
STATEMENT:
+1.1 - Form of Underwriting Agreement.
*2.1 - Share Exchange Agreement dated October 7, 1996, among the
Company and the Shareholders of the Predecessor Corporations.
*3.1 - Articles of Incorporation of the Company.
*3.2 - Bylaws of the Company.
*4.1 - See Exhibits 3.1 and 3.2 for provisions in the
Company's Articles of Incorporation and Bylaws defining the
rights of holders of the Company's Common Stock.
+5.1 - Opinion of Fowler, White, Gillen, Boggs, Villareal and
Banker, P.A. with respect to legality of the Common Stock
being issued.
*10.1 - 1996 Stock Incentive Plan of the Company.
*10.2 - Form of Indemnification Agreement between the Company and
each of its directors and executive officers.
*10.3 - Loan Commitment Letter, dated October 4, 1996, between the
Company and Trans Financial Bank.
*10.4 - South Florida Development Option Agreement, dated as of
October 7, 1996, among the Company, Kevin Toomy, and Toomy
CLN, Inc.
*10.5 - Limited Partnership Agreement of Hops of South Florida, Ltd.,
among Hops of South Florida, Inc., Hops Partners, Inc.,
Toomy CLN, Inc., and Kevin Torrey.
*10.6 - Hops of the Rockies Development Option Agreement, dated as of
January 1, 1996, among the Company, Rocky Mountain Restaurant
Partners, Inc. ("RMRP"), and the Shareholders of RMRP.
*10.7 - Limited Partnership Agreement of Hops of the Rockies, Ltd.,
among Hops of the Rockies, Inc., Hops Partners, Inc., RMRP,
Joseph F. Timberlake III, and the Shareholders of RMRP.
*10.8 - Third Amended and Restated Joint Venture Agreement of The
Hops Northeast Florida Joint Venture No. I, dated as of
March 13, 1996, among Hops of Northeast Florida, Inc., Fitch,
Inc., and HNEF Area Manager II, Ltd.
*10.9 - Second Amended and Restated Joint Venture Agreement of The
Hops Northeast Florida Joint Venture No. II, dated as of
September 1, 1995, among Hops of Northeast Florida, Inc.,
Fitch, Inc., and HNEF Area Manager II, Ltd.
*10.10 - Second Amended and Restated Joint Venture Agreement of The
Hops Northeast Florida Joint Venture No. III, dated as of
September 1, 1995, among Hops of Northeast Florida, Inc.,
Fitch, Inc., and HNEF Area Manager II, Ltd.
+10.11 - Employment Agreement between the Company and Terence M.
Terenzi.
+10.12 - Employment Agreement between the Company and Timothy V.
Curci.
*21.1 - List of subsidiaries of the Company (each of which will
become a subsidiary of the Company pursuant to the Share
Exchange Agreement referred to in Exhibit 2.1).
23.1 - Consent of KPMG Peat Marwick LLP.
II-2
<PAGE>
+23.2 - Consent of Fowler, White, Gillen, Boggs, Villareal and
Banker, P.A. (included in its opinion to be filed as Exhibit
5.1).
24.1 - Powers of Attorney of Directors and Executive Officers
(included on the Signature Page of this Registration
Statement).
- ------------
* Previously filed.
+ To be filed by amendment.
(B) THE FOLLOWING FINANCIAL STATEMENT SCHEDULES HAVE BEEN FILED WITH
THIS REGISTRATION STATEMENT:
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tampa, State of Florida, on December 5, 1996.
HOPS GRILL & BAR, INC.
By: /s/ DAVID L. MASON
---------------------------
David L. Mason
CHAIRMAN OF THE BOARD, PRESIDENT,
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the directors and/or
executive officers of Hops Grill & Bar, Inc. whose signature appears below
hereby appoints David L. Mason and Thomas A. Schelldorf, and each of them
severally, as his attorney-in-fact to sign in his name and behalf, in any and
all capacities stated below and to file with the Commission, any and all
amendments, including post-effective amendments to this registration statement,
making such changes in the registration statement as appropriate, and any
registration statement filed pursuant to Rule 462(b) of the Act prepared in
connection therewith, and generally to do all such things in their behalf in
their capacities as officers and directors to enable Hops Grill & Bar, Inc. to
comply with the provisions of the Securities Act of 1933, and all requirements
of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ DAVID L. MASON Chairman of the Board, President, December 5, 1996
- -------------------------- Chief Executive Officer
DAVID L. MASON (Principal Executive Officer)
/s/ THOMAS A. SCHELLDORF Executive Vice President, Chief December 5, 1996
- -------------------------- Operating Officer, and Director
THOMAS A. SCHELLDORF
/s/ TERENCE M. TERENZI Vice President-Finance, Chief December 5, 1996
- -------------------------- Financial Officer, and Director
TERENCE M. TERENZI (Principal Financial and
Accounting Officer
</TABLE>
II-4
<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
EXHIBITS
TO
AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------
HOPS GRILL & BAR, INC.
================================================================================
<PAGE>
INDEX TO EXHIBITS
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
------- ----------- ----------
23.1 Consent of KPMG Peat Marwick LLP. _____
EXHIBIT 23.1
The Shareholders of Hops Grill and Bar, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
- --------------------------
Tampa, Florida
December 5, 1996
